MERS takes its toll on South Korean econ­omy

The China Post - - COMMENTARY -

The spread of the Mid­dle East re­s­pi­ra­tory syn­drome across South Korea is feared to be mak­ing a deep in­dent on the South Korean econ­omy, which has al­ready been strug­gling with de­clin­ing ex­ports and slump­ing do­mes­tic spend­ing.

Thor­ough mea­sures should be taken to con­tain the deadly virus from spread­ing fur­ther. Still, it is nec­es­sary to pre­vent ex­ces­sive panic from wors­en­ing the eco­nomic down­turn.

The cur­rent sit­u­a­tion is com­pa­ra­ble to the spread of con­cern in 2003 over the se­vere acute re­s­pi­ra­tory syn­drome hit­ting Hong Kong and other Asian coun­tries. At the time, the gov­ern­ment set aside 4 tril­lion won (US$3.6 bil­lion) in a sup­ple­men­tary bud­get and the cen­tral bank low­ered its key in­ter­est rate twice by 0.25 per­cent­age points to help keep the econ­omy from be­ing pulled into re­ces­sion. The mea­sures were also de­signed to cope with de­te­ri­o­rat­ing eco­nomic con­di­tions abroad.

It has yet to be seen how se­vere- ly the South Korean econ­omy will be af­fected by the MERS out­break. But the fear over the dis­ease, which has been ex­ac­er­bated by the gov­ern­ment’s neg­li­gent ini­tial re­sponse, has al­ready hit the tourism and re­tail sec­tors. With ex­ports de­clin­ing due to a weaker yen and slug­gish global de­mand, the fur­ther slump in do­mes­tic ex­pen­di­ture may pull this year’s eco­nomic growth rate be­low 3 per­cent.

Gov­ern­ment and cen­tral bank of­fi­cials have not yet sent sig­nals that they will take ad­di­tional mea­sures to help boost the econ­omy. Fi­nan­cial pol­i­cy­mak­ers may hes­i­tate to put for­ward a large-scale sup­ple­men­tary bud­get due to a pos­si­ble short­age of tax rev­enues. Cen­tral bankers may be con­cerned about the im­pact of the U.S. in­ter­est rate hike that is ex­pected to come later this year.

As many ex­perts note, how­ever, the cur­rent con­di­tions seem to re­quire a mix­ture of fis­cal and mon­e­tary mea­sures that could help pre­empt the fur­ther wither­ing of con­sumer and busi­ness sen­ti­ment.

The Bank of Korea’s mon­e­tary pol­icy com­mit­tee is watch­ing ef­forts to con­tain the spread of the MERS virus be­fore it con­venes a meet­ing Thurs­day to de­cide whether to lower the key rate, which stands at a record low of 1.75 per­cent. The com­mit­tee may be right to cut it ad­di­tion­ally this time as it will be more dif­fi­cult to lower the rate when the U.S. rate in­crease is im­mi­nent. This is an ed­i­to­rial pub­lished by The Korea Her­ald on June 8.

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