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Roundup: S.Korea to spend over 13.5 bln USD for stimulus package after MERS outbreak

Xinhua, June 25, 2015 Adjust font size:

South Korea's finance ministry said Thursday that it would spend more than 15 trillion won (13.5 billion U.S. dollars) to stimulate the economy hit by the outbreak of Middle East Respiratory Syndrome (MERS).

The stimulus package included a supplementary budget plan, but the size of the extra budget would be decided upon in early July after consulting with lawmakers, according to the second-half economic policy direction.

Finance Minister Choi Kyung-hwan said that it would be hard to reach a 1 percent growth rate, the government's earlier forecast, in the second quarter on a quarterly basis due to the MERS outbreak.

It would mark the below-1-percent growth for six straight quarters, fueling worries about the prolonged trend of low growth, Choi said, adding that such concerns led the government to announce the stimulus measures.

The ministry cut its 2015 growth outlook from 3.8 percent to 3. 1 percent on worries about further sluggishness in domestic demand caused by the MERS outbreak and slowing exports amid the global economic slowdown.

The case of MERS infection increased to 180 Thursday since the first case was reported on May 20. The death toll rose to 29 as two more patients passed away.

The economy was damaged by the MERS fears as consumers refrained from entertainment and social gatherings and even delayed going for shopping. Tens of thousands of foreign tourists cancelled travel plan to South Korea amid the unabated worries about the viral disease.

The Bank of Korea (BOK) lowered the benchmark interest rate by 25 basis points earlier this month to an all-time low of 1.5 percent amid the rising MERS concerns.

The central government plans to increase the execution of fiscal funds for local governments as the MERS spread nationwide and hit the local economies. To boost exports, public trade finance would be provided for exporters.

Detailed supplementary budget plan would be submitted to the parliament next month. If the extra budget bill is passed, it would mark the second since the Park administration took office in February 2013.

Private consumption was forecast to grow 2.1 percent in 2015 from a year earlier thanks to the stimulus package effect.

Outlook for consumer price inflation was set at 0.7 percent, dropping from an initial forecast of 2 percent. The figures for facility investment and construction investment were placed at 5.6 percent and 4.5 percent each.

Job creation was expected to reach some 400,000 this year, lower than an earlier estimate of 450,000 jobs added.

A large portion of the stimulus package is widely forecast to be spent on creating new jobs, especially for youths in their 20s. About half of college graduates reportedly failed to find jobs as companies were reluctant to employ new workers amid the faltering economy.

The ministry expected the South Korean economy to increase 3.5 percent in 2016 after growing 3.1 percent this year. The headline inflation was forecast to rise from 0.7 percent this year to 1.3 percent next year. Endi