South Korea braces for economic pain as virus cases soar

[SEOUL] South Korea warned that its fragile economic recovery is under threat from the novel coronavirus that has spread dramatically across the country over the past week, and pledged action to minimise the fallout.

The epidemic poses a "large concern that it will limit the trend of economic recovery started late last year", first vice-minister Kim Yong Beom said on Monday, according to the Finance Ministry. He cited a drop in domestic consumption and exports to China, among other impacts.

The number of infections in South Korea soared from just over 30 to more than 760 in the past week, with the virus claiming the lives of at least seven people so far.

The spike has led President Moon Jae In to raise the country's infectious disease alert to the highest level for the first time since 2009, allowing the government to restrict public activities.

The Bank of Korea has convened an emergency meeting for this afternoon to discuss the virus impact, with an increasing number of economists convinced the bank will cut its benchmark interest rate at its regularly scheduled meeting on Thursday.

The government is reviewing all possible measures, including an extra budget, local media cited vice-minister Mr Kim as saying.

South Korea's economy tends to be impacted quickly by global events due to its reliance on trade, especially with China.

South Korea's imports from the world's second-largest economy plunged 19 per cent in the first 20 days of February, illustrating how the virus is disrupting the region's supply chain.

"The Bank of Korea may ease at its February meeting in a pre-emptive move to cushion the economic impact of the coronavirus outbreak. South Korea's cases surged over the past week, threatening to further disrupt economic activity," said Justin Jimenez of Bloomberg Economics.

The economy is expected to suffer further as fear spreads among the population, limiting economic activity.

Samsung Electronics Co was among the latest companies to see its business operations affected, as it shut down operations at a plant in Gumi City, south-east of Seoul, after an employee tested positive for the virus.

The government has urged citizens to avoid outdoor activities and mass religious services, and delayed the start of the school year by a week.

South Korea's benchmark Kospi stock index and the won plunged, as investors turned risk-averse when markets opened on Monday.

BLOOMBERG