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By Yoon Ja-young
Middle East Respiratory Syndrome (MERS) may be hurting Korea's already feeble economic recovery.
Kim Young-hwan, a strategist at LIG Investment and Securities, said, "MERS is spreading faster than expected, and the information was not fully transparent. That led to a bigger fear over infection than it should be. It means the economic loss could also be bigger."
Some even go as far as comparing the economic impact of MERS to that of the Sewol Ferry disaster in April of last year.
With more people refraining from economic activities, its negative impact might be bigger and last longer than originally thought.
"Even if the MERS is contained early, it seems inevitable that the economic sentiment and consumption will be negatively affected for at least one quarter," said Bae Min-keun, an economist at LG Economic Research Institute. "Uncertainties will weaken consumer sentiment, slowing down economic activities especially in the service sector."
According to the Korea Center for International Finance, Morgan Stanley estimates Korea's growth rate to be slashed by 0.15 percentage points in the event MERS is contained within a month.
If the outbreak lasts for three months, the growth rate will go down by 0.8 percentage points.
Bae pointed out that foreign tourists have been a sustaining pillar for leisure industries and retail, amid sluggish domestic consumption that has lasted for years.
About 60 percent of the foreigners visiting Korea are from China, Hong Kong and Taiwan, which have experienced SARS.
"They are thus likely to be more sensitive to the MERS outbreak. As they are cancelling trips to Korea, related industries will inevitably suffer a decrease in sales," he said.
According to the Korea Tourism Organization, more than 50,000 foreigners have canceled visits to Korea due to MERS thus far.
Min Byung-kyu, a market analyst at Yuanta Securities, shared concern that the MERS outbreak has come amid sluggish exports.
"Exports decreased by double digits in May for the first time since August 2009, and consumption is likely to worsen due to MERS. That's why demand is increasing in the market that the Bank of Korea should cut the key rate," he said.
However, he said domestic consumption and the number of foreign tourists can start to pick up when the number of the infected starts to decrease.
Meanwhile, Strategy and Finance Minister Choi Kyung-hwan said the government will try to minimize the negative effects.
He said Wednesday that a special fund will be provided for small and medium-sized enterprises in industries directly affected by cancellations following the MERS outbreak, such as tourism, lodging and culture.
"It is worrisome that excessively negative sentiment will worsen the economic situation for the working class and the self-employed. We will minimize the effect of MERS on the economy," he said.
