MERS outbreak casts cloud on economy

Concerns over the negative impact of an outbreak of Middle East respiratory syndrome on the Korean economy are rising after the health authorities reported the first two deaths from the disease Monday.

“Unless the authorities prevent the further spread of MERS, the number of Chinese travelers could fall at a fast pace, which will deal a blow to domestic consumption,’’ said Lim Hee-jung, a researcher from Hyundai Research Institute.

Spending by Chinese visitors has boosted domestic consumption in recent years. The number of Chinese visitors to Korea hit a record high of 6 million last year, which is equal to around 12 percent of the total South Korean population.

“What is worse is that the slowdown in domestic consumption could throw cold water on the entire economy at a time when the nation’s exports, another key drive for the economic growth, keep falling,” Lim said. 

According to the trade ministry Monday, the nation’s outbound shipments fell 10.9 percent on-year in May to $42.4 billion, the largest drop since August 2009.

Industry watchers forecast that the downward trend in exports would continue, mentioning such structural issues as the falling yen.

Travel agencies and retail firms have kept a close eye on the spread of MERS.

“We are on alert over cancellation inquires by Chinese clients,” Oh Seung-hwan from HanaTour, the nation’s largest tour agency, said.

“Over the past two days, about 300 Chinese clients canceled their trip to Korea in June, but it is too early to tell the impact of the virus outbreak on the inbound travel market.’’

The MERS outbreak has rattled the stock market this week. Stocks related to spending byChinese visitors on items such as inbound travel, cosmetics, department stores and airlines fell more than 5 percent on Tuesday.

Shares of Hana Tour plunged 7.66 percent to 114,500 won ($103) as of 3 p.m. Tuesday. Shares of AmorePacific, one of the most popular shopping brands for Chinese visitors, dropped 4.52 percent to 370,000 won.

In stark contrast, shares of MERS vaccine developer GeneOne and mask manufacturer Okong soared more than 14 percent Tuesday.

Stock market watchers say shares related to MERS will go through ups and downs for a while as uncertainty for the virus containment escalates.

The further spread of MERS could lead the Bank of Korea to consider cutting the key interest rate in June, economists said.

The central bank has already been under growing pressure to cut rates amid sagging exports and sluggish domestic demand.

By Seo Jee-yeon (jyseo@heraldcorp.com)