The South Korean government today agreed to inject USD 20 billion into the flagging economy, which has been hit by the MERS virus outbreak and sluggish consumption.
The 22-trillion-won (USD 19.8 billion) stimulus package was passed at a cabinet meeting of government ministers, the finance ministry said.
"The extra budget will help revitalise the economy and stabilise the livelihoods of ordinary people who have been affected the most by the fallout from MERS," Vice Finance Minister Bang Moon-Kyu was quoted as saying by Yonhap news agency.
As of this morning, the virus had killed 33 people and a total of 184 cases had been confirmed. Forty-two of those remain hospitalised with 12 in critical condition, according to the health ministry.
The 22 trillion won package includes an already-announced 15 trillion won supplementary budget and seven trillion won of other expenditures such as expanded investments by state companies and additional credits for exporters.
The extra expenditure is expected to raise the economic growth rate by 0.3 percentage points this year and 0.4 percentage points in 2016.
South Korea forecasts its economy will grow 3.1 per cent this year and 3.5 per cent next year.
Moody's said consumer sentiment had plummeted as a result of MERS, halting the recovery in domestic demand, as the external sector continues to drag on growth.
"Our tracking model suggests GDP growth slowed to 2.6 per cent year over year in the second quarter, which is lower than our 2.9 per cent estimate from May", Emily Dabbs at Moody's Analytics Ltd. Said in an article this week.
Confusion and secrecy over the MERS outbreak has fanned public uncertainty, and parallels have been drawn with the government's poor response to the 2014 Sewol Ferry disaster, which subdued domestic demand for many months, Dabbs said.
Dabbs was referring to a ferry accident that claimed more than 300 lives, mostly teenagers.
