Mers-hit South Korea expected to draw up stimulus budget of up to S$30b

[SEOUL] South Korea is likely to inject between 10 trillion won and 25 trillion Korean won (S$12 billion-S$30 billion) into its economy through a supplementary budget to offset the impact of Middle East Respiratory Syndrome (Mers), analysts predicted.

Kwon Young Sun, an economist at Nomura Group, said in a note that he expects a 10 trillion won supplementary budget by the end of June, equivalent to 0.6 per cent of last year's GDP, which he said would offset lost growth from the Mers outbreak.

Economists at Australia and New Zealand Banking Group Limited (ANZ) on Tuesday forecast a supplementary budget of 20 trillion won to 25 trillion won.

Nineteen people have died from Mers and 154 have been infected with the virus in South Korea. The outbreak, which began last month and is the largest outside Saudi Arabia, has stunted a recovery in domestic consumption.

On Monday, Finance Minister Choi Kyung-hwan, told lawmakers that the government was considering a supplementary budget among other measures to prop up growth, which has also been hit by poor exports.

One lawmaker said during Monday's parliament session that the government could cope with borrowing an extra 20 trillion won if needed.

A decision on the additional budget will be made by the finance ministry by the end of June.

The last additional budget launched by the finance ministry was in 2013, and was worth 17 trillion won.

South Korean law states a supplementary budget can be drawn up only under exceptional circumstances, including war, disasters, economic weakness, and large-scale unemployment.

The Bank of Korea cut its key policy rate to a record low 1.50 per cent last week, citing risks to demand posed by Mers among the reasons for making its fourth reduction since August.

REUTERS