South Korea yesterday announced a 15 trillion won (US$14 billion) stimulus package to boost its troubled economy, hammered by the Middle East respiratory syndrome (MERS) outbreak, which has dented consumer spending and business sentiment.
In announcing the program — which follows a central bank interest rate cut to a record low this month — the South Korean Ministry of Strategy and Finance also slashed its growth outlook for this year.
South Korean Minister of Strategy and Finance Choi Kyung-hwan said the extra move was crucial, as recovery hinges on efforts to quickly contain the effects of MERS.
Photo: EPA
As of yesterday, the virus had killed 29 people and infected 151 since the first case was confirmed on May 20, making it the worst outbreak outside Saudi Arabia.
“We can say that we have overcome the MERS crisis only if our economy rebounds,” Choi said, warning that growth could come in below 3 percent without support from the extra spending.
“The economy is being weighed down by MERS, which has seriously hurt consumption and the service sector,” he said, adding that the government would use all available resources to prop up growth, support exports and create jobs.
Choi said the South Korean government would issue bonds to fund the extra budget, the size of which would be decided after analyzing the impact of MERS.
The ministry slashed its growth forecast for this year to 3.1 percent from an earlier projection of 3.8 percent.
The ministry said the MERS outbreak could pare up to 0.3 percentage points off annual economic growth, vowing to keep close tabs on rising household debt and encourage corporate restructuring that could reduce risks to the economy, which is Asia’s fourth-largest.
The slowing global economic recovery and a weak yen and euro are other risks to South Korea, it said.
As part of the package, provincial authorities will be encouraged to spend more on infrastructure projects, while it will also be used to help contain MERS, address the effects of a severe drought and create more jobs.
“We’re trying to cope with shocks from non-economic issues by boosting fiscal spending sufficiently and keeping it expansionary,” ministry Director-General Lee Chan-woo said. “This supplementary budget is to offset the effect of MERS, the drought, and to help low-income earners.”
The Bank of Korea cut interest rates this month to a record-low 1.5 percent as businesses including shops, restaurants and movie theaters reported a slump in sales.
South Korea’s exports fell 10.9 percent from a year earlier last month, shrinking for the fifth consecutive month.
The ministry forecast that this year’s exports would fall 1.5 percent from a year ago. It also lowered its inflation outlook to 0.7 percent.
South Korea’s benchmark KOSPI failed to get a boost from the government’s announcement and fell 0.02 percent to 2,085.06 with sentiment weakened by stalled talks on a Greek bailout.
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