A Measure to Stimulate Consumption, Investment

Deputy Prime Minister Hong Nam-ki (second from the right) and Science and ICT Minister Yoo Young-min (right) at a government meeting on June 27

The South Korean government is planning to raise a fund of five trillion won to launch projects for regional urban regeneration and investment in regional tourism infrastructure. In addition, the government is considering cutting the individual consumption tax by 70 percent for those buying a new car after scrapping a 10-year-old or older car and is considering giving a refund of 10 percent to those buying the most energy-efficient consumer electronics products.

These measures for domestic consumption and investment promotion are expected to be included in the government’s economic policy for the second half of this year, which is scheduled to be announced on July 3.

“We are expecting that the Korea Development Bank, institutional investors and the private sector will chip in for the fund for the project financing-based regional urban regeneration projects,” the government explained, adding, “Private financial institutions engaged mainly in long-term investment, such as life insurance companies and pension funds, can be attracted with the Korea Development Bank playing a leading role in the fund and project financing.”

The government’s focus on consumption and investment promotion has to do with the fact that external uncertainties such as the ongoing trade war between the United States and China are showing no signs of easing and the handling of the 6.7 trillion won supplementary budget in the National Assembly is already on hold for more than two months, reducing the potential positive effects of the budget.

With uncertainties mounting on the export side, more domestic consumption and investment are the only options for economic stimulus. Sluggish capital spending in the private sector and sluggish investment in the construction sector are already showing signs of lingering. The former fell 4.4 percent in 2018 and dropped 9.1 percent from the previous quarter in the first quarter of 2019, causing South Korea’s economic growth rate to fall 0.4 percent in that quarter. During the period, the private consumption growth hit a three-year low of 0.1 percent. The Ministry of Economy and Finance is considering lowering its economic growth forecast for this year from 2.6 to 2.7 percent to 2.4 to 2.5 percent.

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