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MERS to cut Korea's growth by 0.3 percentage point: report

The outbreak of Middle East Respiratory Syndrome is likely to shave 0.3 percentage point off South Korea's 2015 economic growth as households scale back spending and foreign tourists cancel their visits, a report said Tuesday.

Since the first case was confirmed on May 20, the viral disease has claimed 19 lives, sparking a serious health scare and fueling concerns it could negatively impact Asia's fourth-largest economy struggling with weak domestic demand and slumping exports.

"We now believe that MERS will reduce 2015 gross domestic product growth by 0.3 percentage point ... the negative impact is likely to be concentrated in June-August," the Japanese investment bank Nomura said in the report, forecasting the Korean economy to grow 2.2 percent under current circumstances.

It attributed most of the fall to a slump in household spending, which is forecast to drag down growth by 0.2 percentage point. A decline in the number of foreign tourists, by about 300,000, is also expected to additionally trim growth by 0.1 percentage point, the company added.

Nomura, however, said the government will likely draw up a 10 trillion won ($9 billion) supplementary budget to contain downside growth risks from the MERS outbreak. The move is expected to offset the 0.3 percentage point fall and shore up annual growth to 2.5 percent as it had previously predicted.

The report comes as the unprecedented outbreak of the respiratory illness has taken a toll on the local retail and tourism sectors, which have emerged as rare bright spots in the Korean economy that is stuttering on sagging exports.

Local manufacturers have lost their luster to Japanese rivals as the won trades stronger than the yen, with shipments falling the most in almost six years in May.

Finance ministry data showed that sales at the country's department stores and discount chains dropped 16.5 percent and 3.4 percent from the previous year in the first week of June after the country's first case of MERS infection was confirmed on May 20.

Separate data by the state tourism agency showed that more than 100,000 foreigners, most of them Chinese tourists, have canceled their travel plans to the country on fears of catching the viral disease.

Seoul has been moving to mitigate the economic fallout from the growing outbreak. Earlier this month, the Bank of Korea slashed the key policy rate by a quarter percentage point to a record low of 1.5 percent "in order to ease the negative effects of MERS on economic sentiment and the real economy."

With the rate cut delivered, the focus has shifted to fiscal policies. Lawmakers, including ruling Saenuri Party Chairman Kim Moo-sung, have been upping the ante on a supplementary budget to bolster growth that is estimated in the low 3 percent range for this year.

Speaking at the parliament on Monday, acting Prime Minister Choi Kyung-hwan said the government plans to make the final decision after monitoring the economy until the end of June but acknowledged that the MERS outbreak has spawned the need to step up economic stimulus. (Yonhap)

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