Korea cuts growth outlook to 2.8%

The Bank of Korea on Thursday revised its outlook on the nation’s gross domestic product growth down to 2.8 percent from its earlier forecast of 3.1 percent, citing weaker-than-expected consumer sentiment due to the outbreak of Middle East respiratory syndrome in May and June and an ongoing export slump.

This is the second downgrade of the year, three months after the central bank cut the 3.4 percent outlook to 3.1 percent in April due to the weak Japanese yen versus the Korean currency and intensifying competition with Chinese exporters. 

“The MERS outbreak has led to a significant drop in the consumer sentiment, restraining other economic players’ spending,” said BOK Gov. Lee Ju-yeol in a press briefing at the bank headquarters in Seoul.

“The Korean economy is expected to make a gradual recovery along with the government’s expansive macroeconomic policies and the influence of the MERS virus, yet with a high level of uncertainty,” the BOK chief added.

The BOK also pointed at the Greek financial woes, in addition to the growing expectations that the U.S. Federal Reserve may tighten monetary policy later this year, as potential impacts on the Korean economy.

MERS, foreign to the Korean soil, entered Korea in late May, claiming the lives of 35 and putting eight in critical condition. As the disease spreads through physical contact, consumers refrained from economic activities in normally crowded venues.

As of last week, about 15,000 of Korea’s 51 million population are or have been put in quarantine for suspected MERS symptoms, government data showed.

On the same day, BOK’s monetary policy committee froze the key rate at 1.50 percent for July, following the recent Cabinet approval of an extra budget plan, part of the 22 trillion won ($19.6 billion) economic stimulus package.

The 11.8 trillion won extra budget plan was submitted to the National Assembly on Monday for final approval.

“The extra budget can revitalize the economy and stabilize the livelihoods of ordinary people who have been affected most by the fallout of the MERS outbreak and prevent a sharp drop in consumer spending,” said Vice Finance Minister Bang Moon-kyu on Monday. 

By Chung Joo-won (joowonc@heraldcorp.com)