Korea hopes to contain the economic fallout from MERS with a big stimulus package

Korea’s government just slashed its economic growth forecast down to 3.1% from 3.8% and announced a fiscal stimulus package in response to the MERS outbreak that’s taken a toll on its economy.

Details about the exact size and composition of the package are expected after the government holds a meeting in early July. However, according to reports, it will be worth at least 15 trillion won (~$US13.5 billion) — 1% of the country’s GDP — and will primarily pump up the services sector.

“The announcement of a fiscal stimulus was widely expected, and comes amid rising evidence that the outbreak of MERS is starting to take a significant toll on the economy. Sales are department stores fell almost 30% in the first two weeks of the month. Meanwhile, consumer sentiment, which had been recovering prior ot the outbreak of MERS, has dropped back,” according to Capital Economics’ Gareth Leather.

“[I]t is worth pointing out that fiscal stimulus measures to support growth during periods of economic weakness are nothing new to Korea, and historically they have proved effective at propping up growth,” writes Leather.

“Thanks mainly to a surge in spending during the 2008-9 financial crisis, Korea was one of the few economies in the region to avoid falling into recession.”

MERS, a viral respiratory disease that was first identified in Saudi Arabia, hit Korea in late May. Since then, over 180 cases of infection have been confirmed, and 29 have died. No vaccine or specific treatment is currently available, according to the World Health Organisation (WHO).

The virus has spread quickly, but “does not appear to pass easily from person to person unless there is close contact such as providing clinical care to an infected patient while not applying strict hygiene measures,” according to the WHO. Still, it has caused widespread alarm.

Fearing the outbreak, people have stopped going to movies, amusement parks, baseball games, and museums, and over 120,000 tourists canceled trips to Korea — which has already damaged the country’s economy.

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