South Korea cut its growth estimate for this year and announced 8.5 trillion won (US$7.4 billion) of spending to support the economy as officials predict a protracted European debt crisis.
GDP may expand 3.3 percent this year, less than a December estimate of 3.7 percent, the Finance Ministry said on Wednesday in a biannual economic review.
Inflation may be 2.8 percent rather than an earlier prediction of 3.2 percent, according to the ministry. The central bank had already pared its estimate for the nation’s growth to 3.5 percent from 3.7 percent.
The spending, including assistance for small businesses and low-income earners, is within this year’s budget, said Choi Sang Mok, a director-general at the ministry in Gwacheon, South Korea. The government also announced incentives to attract foreign-currency deposits to banks, a buffer against volatility in capital flows.
Depositors outside South Korea will be exempt from interest income tax on foreign-currency savings at the nation’s banks, the ministry said.
Banks will pay reduced levies on their foreign-currency borrowings if they attract more foreign-currency deposits, it said.
“The spread of the eurozone fiscal crisis and belt-tightening in major advanced economies may slow global economic growth,” the finance ministry said. “Recession in the eurozone may deepen amid fiscal tightening and political turmoil, while financial markets show continued jitters.”
Separately, Thailand’s Finance Ministry raised this year’s economic growth forecast for a second time as manufacturing and local demand recovered from the nation’s worst floods in almost 70 years.
GDP is estimated to expand by 5.2 percent to 6.2 percent, with a midpoint forecast of 5.7 percent, Somchai Sujjapongse, head of the fiscal policy office, said yesterday in Bangkok. The ministry in March predicted the economy would grow about 5.5 percent this year.
The industrial production index rose 5.53 percent last month from a year earlier, supporting Thailand’s economic recovery, a separate government report yesterday showed.