SEOUL, South Korea – South Korea’s central bank cut its economic growth forecast Thursday, citing a severe drought and the spread of Middle East respiratory syndrome.
Bank of Korea governor Lee Ju-yeol said that South Korea’s economy will likely expand 2.8 per cent this year, down from 3.1 per cent forecast in April. The central bank kept its key interest rate at a record low of 1.5 per cent, following a quarter of a percentage rate cut last month.
The central bank’s forecast cut follows a similar move by the finance ministry last month. The ministry blamed the MERS outbreak for sapping consumption and tourism. It pledged to spend 12 trillion won ($10.6 billion) in a stimulus package to aid growth for the rest of this year. Lee said the stimulus package will contribute 0.3 percentage point to annual growth.
Hundreds of thousands of foreign visitors from China cancelled visits to South Korea after the outbreak of the disease in May. The ministry said the number of foreign visitors plunged 40 per cent during the first four weeks in June, compared with a year earlier. Chinese tourists are a lifeline for many businesses in the country’s cosmetics, hotel, transport and restaurant industries.
Lee said a recovery in the current quarter depends on whether foreign tourism bounces back from the MERS outbreak. Meanwhile domestic consumption is expected to recover as MERS is contained, he said.
Following the central bank’s announcement, South Korea’s finance ministry said it would step up promotional and advertising activities to bring more foreign tourists to the country. Finance Minister Choi Kyung-hwan urged South Koreans to pick a domestic destination for their summer vacation to help the tourism industry.
MERS killed 35 people and infected 151 others, making South Korea the second-largest outbreak after Saudi Arabia.
Most of the South Koreans infected were patients at hospitals treating people with MERS, their relatives or hospital workers. South Korea hasn’t had a confirmed new case of MERS since Sunday.
This story has been corrected to show the total number of MERS cases in South Korea is 186, not 166.