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Minimum wage hike to cut profits at retail sectors, but bolster consumption

A decision by the government to raise the minimum wage next year is expected to cut profits at convenience and discount store chains, but it could help bolster consumption, according to foreign investment banks on Friday.

The government has decided to hike minimum wage 16 percent to 7,530 won ($6.7) per hour next year, marking its biggest rise since 2000. It would affect about 4.63 million workers.

The Korea Center for International Finance report, citing Citibank, speculated the hike in the minimum wage will cut operating profits at convenience stores by 8 to 9 percent.  


As for discount store chains, their operating profits are forecast to be reduced by 5 to 6 percent.

HSBC said the hike in minimum wage is further expected to increase the financial burden for small merchants and self-employed businesses, according to the KCIF report.

Meanwhile, foreign investment banks, including Citibank and Societe Generale, predicted that the hike in the minimum wage could increase disposable income and help boost consumption.

Societe Generale said the South Korean government decided to raise the minimum wage for its target of achieving income-led growth.

Japan's Nomura Securities expected the Bank of Korea to increase its key interest rate at an earlier date than anticipated because the hike in minimum wage would quicken the pact of inflation growth. (Yonhap)

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