The South Korean economy seems to be gradually recovering from the fallout of MERS that dealt a huge blow to domestic demand over the past months, a central bank report showed Thursday.

The MERS outbreak, the second-largest infection outside Saudi Arabia, claimed 36 lives here. South Korea declared a de facto end to the MERS outbreak on July 28, about two months after it reported its first case on May 20.

The fatal respiratory illness sapped private spending by making locals refrain from outside activities on fear of contracting the disease, dealing another blow to Asia's fourth-largest economy already struggling with falling exports.

"In July and August, the domestic economy has been on a recovery track, getting out of the aftereffects of MERS," said the report released by the Bank of Korea.

"But the recovery pace will be gradual due to the slowing Chinese economy and weakening competitiveness of key products."

The BOK report said the retail and tourism sectors were directly affected by the MERS outbreak due largely to a sharp drop in the number of Chinese tourists.

In June, when the MERS fears peaked, sales in discount outlets and department stores fell 14.5 percent and 11.7 percent, respectively, according to the data by the central bank.

With the MERS scare ebbing, the slump eased in July and retail sales rebounded to a normal level in August, noted the report.

However, shops and restaurants in famous tourist destinations in downtown Seoul have been still reeling from a protracted slump since June. The number of foreign visitors plunged 41 percent on-year in June and 53.5 percent in July, with August also witnessing a 32 percent drop in the number of foreign travelers in the first 20 days of the month.

The BOK forecast that it will take another two or three months to see a turnaround in the number of visitors. (Yonhap)