SEOUL: The South Korean government on Friday agreed to inject $20 billion into the flagging economy, which has been hit by the MERS virus outbreak and sluggish consumption.
The 22-trillion-won ($19.8 billion) stimulus package was passed at a cabinet meeting of government ministers, the finance ministry said.
“The extra budget will help revitalize the economy and stabilize the livelihoods of ordinary people who have been affected the most by the fallout from MERS,” Vice Finance Minister Bang Moon-Kyu was quoted as saying by Yonhap news agency.
As of Friday morning, the virus had killed 33 people and a total of 184 cases had been confirmed. Forty-two of those remain hospitalized with 12 in critical condition, according to the health ministry.
The 22 trillion won package includes an already-announced 15 trillion won supplementary budget and seven trillion won of other expenditures such as expanded investments by state companies and additional credits for exporters.
The extra expenditure is expected to raise the economic growth rate by 0.3 percentage points this year and 0.4 percentage points in 2016.
South Korea forecasts its economy will grow 3.1 percent this year and 3.5 percent next year.
Moody’s said consumer sentiment had plummeted as a result of MERS, halting the recovery in domestic demand, as the external sector continues to drag on growth.
“Our tracking model suggests GDP growth slowed to 2.6 percent year-over-year in the second quarter, which is lower than our 2.9 percent estimate from May,” Emily Dabbs at Moody’s Analytics Ltd. said in an article this week.
Confusion and secrecy over the MERS outbreak has fanned public uncertainty, and parallels have been drawn with the government’s poor response to the 2014 Sewol Ferry disaster, which subdued domestic demand for many months, Dabbs said.
Dabbs was referring to a ferry accident that claimed more than 300 lives, mostly teenagers.
The government of President Park Geun-Hye has also been criticized for inadequately responding to the MERS outbreak.
“Should the government fail to regain the public’s trust, the outbreak could take a larger economic toll. The outbreak has caused us to lower our GDP forecast to 2.6 percent for 2015,” Dabbs said.
The central Bank of Korea this month slashed its benchmark interest rate by a quarter basis point to another record low of 1.5 percent to stem the impact from the outbreak.
Despite lingering fears over MERS, the country is hosting two international sporting events this week—the World University Games in southern Gwangju City and the ITTF World Tour Korea Open in the western city of Incheon.
Scores of thermo heat sensing cameras have been installed at airports, athletes’ villages, sports venues and hotels, with some 600 medics monitoring participants.
Nevertheless, some athletes have pulled out with a third of Hong Kong’s 100-strong team opting to stay at home after the southern Chinese city issued a South Korea travel warning to its citizens.