Asia’s fourth largest economy comes face to face with a possible economic battle as an outbreak of Middle East Respiratory Syndrome (MERS) drew upon a negative outlook by credit rating agency Moody’s on Thursday.
"The spread of the illness is credit negative for the sovereign, because it is dampening consumer confidence amid already-weak domestic demand, threatening to undermine an incipient recovery in economic growth," said Moody's in a statement.
The death toll in the outbreak has now reached 23, as three more cases were reported in South Korea on Thursday. Additionally, more than 6,500 people are in quarantine either at home or in health facilities.
South Korea’s finance minister said a supplementary budget may be injected into the country’s economy by the end of June as it is currently weighed down by MERS.
According to Moody’s statement, “Korea’s strong fiscal position provides policy space to tackle and contain the outbreak.” However, “weak domestic demand and slowing exports" will slow down the country’s growth.
Recently, South Korea’s central bank lowered its policy rate by 25 basis points to a record low 1.5 percent amid economic weakness brought on by MERS. Thus, Moody’s believes that this could inflate already-high household debt levels.
Although the country is standing on high alarm, the World Health Organization (WHO) described the efforts of South Korean officials to working to manage the outbreak as “very impressive.”
Moody’s also added that the effect of MERS may be short-term, therefore, its impact on the economy may be limited.
Global ratings agency raised its rating outlook on South Korea from stable to positive, affirming the country's Aa3 rating.