Epidemic poses threat to recovery
The KOSPI plunged to 2,063.16 points, Wednesday, down more than 15.48 points from the previous day, amid rising fears of the spread of Middle East Respiratory Syndrome. Analysts predict the KOSPI may drop more than 6 percent if the spread continues. / Korea Times photo by Shim Hyun-chul
By Yoon Ja-young
The spread of Middle East Respiratory Syndrome (MERS) is raising concerns over possible economic effects as it may dampen domestic consumption.
Analysts in Seoul said the spread of the disease, if not contained effectively, would also hit the bourse hard.
The government said it is also monitoring closely how it will affect the overall economy.
Vice Finance Minister Joo Hyung-hwan said Wednesday that: “Related ministries are studying the impact of MERS on the economy. We will do our utmost to prevent the disease from spreading further.”
Analysts expressed concerns that if MERS is not contained early, it will further reduce domestic consumption that has shown signs of a modest recovery.
The disease is already casting a shadow over the stock market.
Kim Byung-yeon, an analyst at NH Investment and Securities, said that if the tertiary spread of MERS expands, the KOSPI could plunge over 6 percent as did the Hong Kong and Chinese bourses in 2003 when they were hit by severe acute respiratory syndrome (SARS).
China had about 340 casualties and Hong Kong, around 300, from the spread of SARS. The GDP growth rate of China fell to 7.9 percent in the second quarter 2003 from 10.8 percent the previous quarter, and Hong Kong marked a contraction during the period.
He said as MERS has a higher fatality rate than SARS, it could have a bigger blow if the outbreak continues.
He added that consumer sentiment took a beating in the cases of SARS and H1N1 flu.
So Jae-yong, an economist at Hana Daetoo Investment and Securities, said diseases like SARS and H1N1 flu have a negative effect on the economy, especially in the beginning.
“Due to uncertainties and uneasiness, they have exerted a negative effect on domestic consumption and tourism. This of course incurred economic and social costs.”
He said SARS is estimated to have caused over $50 billion in economic losses. “In the case of Hong Kong, retail sales dropped steeply for the next three months after the SARS outbreak, and the number of foreign visitors was halved.”
According to the Korea Tourism Organization, around 7,000 Chinese and Taiwanese tourists have cancelled trips to Korea as of Wednesday. HanaTour, the country’s top travel company, said around 300 Chinese tourists cancel a trip, and Mode Tour, third in the industry, is seeing around a 9 percent cancellation rate.
Restaurants and retailers are already seeing damage as people refrain from gathering together or visiting crowded areas.
If the government succeeds in stopping spread of the disease, the damage won’t be huge.
“Past experience shows that social attention peaks in one or two months following the outbreak. It mostly subsides afterward,” said Park Jeong-woo, an analyst at Samsung Securities.
Meanwhile, analysts expect that MERS may prompt the Bank of Korea (BOK) to cut its key rate.
“Policymakers will examine the effect of MERS, based on diverse indices related to domestic consumption. If the central bank decides to cut its rate, it may ease investor sentiment and boost expectation on economic recovery,” Park said.