S.Korea to hold expansionary fiscal policy amid MERS risks

Asia’s fourth largest economy is likely to make changes to its government stimulus once policy makers release strategy as well as biannual economic forecasts

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

The South Korean government will maintain an expansionary fiscal policy until the economic recovery firms, the finance ministry said on Monday as Asia's fourth-biggest economy faces downside risks from the spread of Middle East Respiratory Syndrome (MERS).

However, a decision on fresh government stimulus is likely to be made only by the end of this month when the ministry releases its policy strategy for the second half of the year, as well as its biannual economic forecasts.

"Although the overall effect from MERS on the economy is limited for now, there are concerns downside risks to growth will expand should the outbreak persist long-term," the finance ministry said in a statement prepared for South Korea's parliament. "We will maintain expansionary macroeconomic policy until the recovery gains footing in earnest."

The export-reliant economy has struggled for momentum in recent quarters in the wake of a collapse in shipments and sluggish domestic demand.

Finance Minister Choi Kyung-hwan said the current situation does not yet meet the legal requirements for a supplementary budget and more time would be needed to observe the economic impact from the virus outbreak.

"Even if the effects from MERS are cut short, there is no doubt that some parts of the economy have been hit," Choi said.

As the respiratory virus spread rapidly, lawmakers including ruling Saenuri Party chairman Kim Moo-sung have called on the government to draw up an additional budget to limit the economic damage wrought by MERS.

South Korea reported five new cases of MERS early on Monday, taking the total to 150. One more patient infected with the virus had died, the 16th fatality from the outbreak.

Last week, the Bank of Korea cut its key policy rate to a record low 1.50 percent, citing growing risks to demand from MERS as a major reason for the fourth easing since August.