The outbreak of MERS (Middle East Respiratory Syndrome) is showing signs of abating although health authorities reported three new cases Tuesday. But the economic fallout from the contagious virus is expected to continue through August amid depressed consumer sentiment.
That’s because it will take time before the situation is brought completely under control as there are an array of unstable factors such as sluggish consumption in the wake of the outbreak. It appears that the disease’s economic impact is far more serious than expected.
In fact, retail sales have taken a nosedive as the public fear over the deadly disease pushed people to change their life patterns. The tourism industry has been hit hard by MERS as more than 120,000 foreigners have cancelled trips to Korea. The pace of cancellation has slowed recently, but it’s too early to expect a full-blown recovery.
To make matters worse, exports, Korea’s prime locomotive of economic growth, have remained sluggish, raising fears that the country’s low-growth trend will continue for a considerable time. Skeptics even warn that Korea could fall into a double dip-like downturn in which the economy will slide back again after recovering briefly.
Most economists believe that the adverse impact on the economy from the MERS epidemic will be much greater than that from the sinking of the ferry Sewol a year ago. The prevailing view is that economic growth will be cut between 0.3 and 0.8 percentage point in the wake of the outbreak, and this prompts speculation that this year’s growth will fall to the 2-percent range again after laboriously rising above 3 percent last year. Most pitiable is that domestic consumption, which had been recovering since April, began to slump again.
In Monday’s emergency executive meeting, the Korea Chamber of Commerce and Industry announced a seven-point action plan to overcome the so-called MERS slump. These measures, which seem timely in consideration of the severity of the latest slowdown, include expanding corporate spending, carrying out planned investment and hiring, and attracting more foreign visitors.
The government appears to be keenly aware of how serious the state of the Korean economy is now. Strategy and Finance Minister Choi Kyung-hwan told the National Assembly that the government would consider measures to prop up economic growth, including a supplementary budget.
Because the opposition is also known to be in favor of stimulus, there will hardly be any obstacles. What is drawing attention is how big the extra budget should be. To achieve 3 percent growth this year, the Hyundai Research Institute has suggested a 22 trillion won supplementary budget, including 10 trillion won needed to make up for this year’s anticipated tax revenue shortfall. At this juncture, the government needs to make the extra budget as big as possible and carry out outlays swiftly to help maximize its pump-priming effect.
What is clear is that the government should mobilize all resources available, before the economy falls into an irrecoverable downward trajectory.