South Korea will add 5.9 trillion won ($5.2 billion) of economic support measures as Europe’s sovereign debt crisis and a slowdown in China drive down the nation’s exports.
The measures include extra spending and tax cuts intended to boost the housing market and car sales, the Finance Ministry said today in an e-mailed statement. Some 4.6 trillion won is allocated for this year, without any expansion of the government’s budget, and 1.3 trillion won for 2013.
South Korea’s government is holding off from larger fiscal stimulus to preserve ammunition for any deeper global slowdown. Asia’s fourth-largest economy may be set to get a boost this week from a reduction in interest rates. The Bank of Korea will cut the benchmark by a quarter point to 2.75 percent on Sept. 13, according to 14 of 15 economists in a Bloomberg News survey.
“The support measures will hardly beat waning consumer and business sentiment,” said Kim Hyeon Wook, an economist at SK Research Institute and a former adviser to the Bank of Korea’s Monetary Policy Committee. “This package isn’t a big, direct cash injection from the government.”
Today’s announcement adds to 8.5 trillion won of support measures announced in June, including assistance for small businesses and low-income earners. Together, the total measures for this year amount to about 1 percent of gross domestic product.
“We’re trying to preserve our fiscal power while maximizing use of all funds available now,” Choi Sang Mok, director-general at the Finance Ministry, told reporters today.
While some of the plan unveiled today will take effect as early as this month, benefits such as exemptions from capital gains tax on home sales will require approval from parliament, Choi said. The government also plans to reduce the sales tax on new cars and home appliances including televisions and refrigerators by 1.5 percentage points through the end of the year.
South Korea’s won advanced 0.1 percent to 1,128.90 per dollar at 2:46 p.m. in Seoul. The benchmark Kospi Index climbed 0.2 percent, while Hyundai Engineering & Construction Co., South Korea’s biggest builder, rose to a three-month high after today’s announcement.
GS Engineering & Construction Corp. rose as much as 3.1 percent and the 35-stock Korea Construction Index jumped as much as 2 percent, poised for the highest since July 6.
“The European crisis is lasting longer than expected and economies both in advanced and developing countries show sluggishness at the same time,” Finance Minister Bahk Jae Wan said at a ministerial meeting today in Seoul. “As such, our economic recovery is being delayed and worries over possible weakness in our economic resilience seem to be growing.”
South Korea’s economy expanded 2.3 percent in the second quarter from a year earlier, the slowest pace in almost three years. Exports fell 6.2 percent in August from a year earlier after an 8.8 percent decline in July.