S. Korea reports 2 more MERS deaths, 5 new cases
The outbreak of Middle East Respiratory Syndrome in South Korea is fueling economic uncertainty at a time when private spending is just showing signs of recovery, the top economic policymaker said Monday.
Speaking to lawmakers at the National Assembly in Seoul, Choi Kyung-hwan said while the spread of the respiratory illness has not seriously impacted the economy as a whole for now, it has the potential to pose downside risks if the situation drags on.
After the first case was confirmed on May 20, the number of MERS deaths in South Korea hit 16 on Monday, with 150 people being diagnosed with the virus. The number of people in quarantine stood at 5,216 as of early Monday.
The health ministry said the fatality rate of the disease stood at 10.7 percent, much lower than the 40 percent tallied in the past, with most people succumbing to MERS having underlying medical problems
“The government is doing all it can to quickly contain the outbreak,” the finance minister told lawmakers on the Strategy and Finance Committee. “There is a need to guard against excessive anxiety and to limit the economic fallout.”
Choi said that Monday and Tuesday will be a watershed for the country in terms of MERS coming under control. He said that if the spread is arrested as forecast by experts, the situation will calm down, even if there are sporadic isolated cases.
He then told lawmakers that the government will quickly reach a decision on the issue of a supplementary budget. There have been growing calls for an extra budget in the wake of the MERS scare and a slowdown in growth.
“The final assessment on the matter will be decided after examining all circumstances up till late June,” the official said.
Choi said earlier in the month that the country’s growth will hover in the low 3 percent range for 2015, much lower than the 3.8 percent predicted by the finance ministry on Dec. 21.
He, however, said that some sort of economy-boosting measures are needed as a result of MERS, and depending on the fallout, the amount of the support could become large. The official hinted that the government might issue bonds if it opts to go forward with the extra budget.
“If extra funds are generated, talks will be held within the government to use part of the money to deal with the drought that is affecting the country,” he said. The official said that while there are concerns that a supplementary budget can lead to fiscal health problems, South Korea’s central government debt is relatively small compared to others.
“Instead of focusing too much on the short-term balance, there is a need to be flexible, and strive for fiscal health in the medium to long term,” he claimed. The finance minister said that under present conditions, raising taxes is not a good idea because it can adversely affect the economy.
The policymaker, who doubles as deputy prime minister for economic affairs, said sales at local department stores and large discount outlets fell in the first week of June compared with a month earlier. Payments made through credit cards were down 5.5 percent earlier this month, vis-a-vis the first two weeks of May.
Data showed that the tourism and leisure industries were hit the hardest with people spending less on entertainment and eating out.
On the criticism directed against the government for not disclosing information about the outbreak, which some argue helped spread the illness, Choi conceded that the health ministry did not do a good job in the early stages. He, however, said that while Seoul wants to guard against wrong information getting out and causing more confusion, it is now committed to releasing all information to the public in a timely manner.
Choi also said exports and industrial production were hurt by the sluggish pace of global economic recovery, with facility investment and money poured into the construction sector on the wane.
“A drop in exports is not as severe as negative growth in global trade volume, but it is facing unfavorable exchange rate challenges,” he said. Outbound shipments plunged 10.9 percent on-year in May.
Both the Japanese yen and the euro have weakened compared with the U.S. dollar, sapping the price competitiveness of South Korean goods in overseas markets.
On fears that a weak yen may pose problems, the minister said that such a development is linked to Tokyo engaging in a quantitative easing program. He said that by fueling domestic consumer spending, the government wants to keep the current account surplus in check. He said that unlike in the past, there is little room for policymakers to intervene directly in foreign exchange rates.
In regards to employment, the minister said jobs created in the first quarter were down compared with the previous three-month period, but there was a rebound in May.
Some 354,000 new jobs were added to the labor market in the January-March period from 729,000 a year earlier. In May, however, 379,000 more jobs were created from the month before.
On other developments, the finance minister said the government is keeping close tabs on a rise in household debt, which is starting to raise alarm bells. He, however, said that with other major countries having almost zero interest rates, it is inevitable that South Korea will maintain its low rate policy. Choi said lower interest burden is another factor that can reduce fallout from more debt.
On the impact of U.S. interest rate hikes, the official said measures are being examined that can limit sudden capital flight that can destabilize the market.
Despite the troubles, the government is fully committed to pushing forward labor, financial, education and public sector reforms that can bolster the country’s competitiveness down the line, he said.
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