S.Korea unveils $11 bln stimulus spending, cuts GDP forecast

SEJONG, South Korea, July 24 Wed Jul 23, 2014 9:00pm EDT

SEJONG, South Korea, July 24 (Reuters) - South Korea unveiled stimulus measures on Thursday to prop up slowing economic growth, including plans to boost public spending by some $11 billion and ease mortgage borrowing rules.

State-run financial institutions such as Korea Development Bank would also supply some 26 trillion won ($25.4 billion) of loans or other financial support to spur investment and help ease troubled small companies, the Ministry of Strategy and Finance said in its biannual economic policy report.

The ministry cut this year's growth forecast to 3.7 percent from 4.1 percent previously. The economy grew 3 percent in 2013.

Its previous growth forecast announced late last year had been set at 3.9 percent, but that was equivalent to 4.1 percent when applying new statistical standards that the country adopted this year, the ministry said.

The ministry blamed weaker exports early this year and softer domestic demand throughout the year for the downgrade, saying the latest forecast was still vulnerable to more downside than upside risks. It said growth would accelerate to 4.0 percent next year.

Under the long-anticipated stimulus measures, government funds and agencies would spend 8.9 trillion won ($8.70 billion) more than planned and budget spending would be raised by some 2.8 trillion won by minimising the usual carry-over, it said.

These quasi-fiscal stimulus spending plans are equivalent to some 0.8 percent of South Korea's annual gross domestic product.

The ministry also said it would unify the loan-to-value and debt-to-income ratio ceilings across the country and across the type of lenders to the effect of easing mortgage borrowings in and around the capital Seoul.

The loan-to-value ratio ceiling would be set at a universal 70 percent, compared with between 50 percent and 85 percent, and the debt-to-income ratio ceiling at 60 percent instead of 50 percent to 65 percent.

($1 = 1,023.9 Korean won) (Reporting by Christine Kim; Editing by Choonsik Yoo and Jacqueline Wong)