South Korea’s Finance Ministry said Thursday (June 16) that the South Korean economy will grow at its slowest pace in three years in 2022 as the world grapples with supply shortages, rising inflation, and skyrocketing interest rates.
The ministry said the entire global economy is in a bottleneck, adding the Ukraine crisis, accelerated inflation, tight finances in major countries, and the lockdowns of cities in China.
Markets expect the Bank of Korea (BOK) to remain aggressive after raising interest rates by 125 basis points in mid-2021. The expected increase is likely to boost private household consumption.
The new government led by President Yoon Suk-Yeol has lowered its growth forecast for this year from 3.1% to 2.6% and raised its inflation forecast from 2.2% to 4.7%, the highest level since 2008.
The government has proposed lowering the maximum corporate tax rate to 22% to help South Korean companies reduce inflationary pressures.
On Thursday, the ministry said that promoting investment in key technological sectors is one of its main policy initiatives. Investments by large corporations in the production of organic light-emitting semiconductors and diodes of 8 to 12% will be deducted from the current corporate income tax, which has been raised from 6% to 10%.
On the other hand, South Korea will improve foreign traders’ access to USD/KRW trading, allowing the country to be included in the MSCI Developed Market Index.
In addition, the government plans to extend the trading hours of the USD/KRW spot market to 17 hours from 00:00 GMT to 17:00 GMT. It will also allow foreign traders to participate, with details to be announced in the third quarter.
Currently, USD/KRW trading is available from 00:00 GMT to 06:30 GMT, and only authorized local financial institutions can participate.
To revive the stock price after the market fell nearly 18% this year, the government has decided to abolish the capital gains tax for individual stock investors. Unless they hold more than 10 billion won ($7.74 million) in one of the stocks.
The government also plans to reduce the tax on stock transactions from 0.23% to 0.20% early next year.