Preemptive action neededThe fast spread of Middle East Respiratory Syndrome (MERS) in Korea rings loud alarm bells across our economic front. Foreigners are increasingly shunning travel to Korea while Koreans refrain from going out for fear of catching the potentially deadly virus. Unless the public’s fear subsides quickly, it could easily lead to consumption contractions, prolonging our anemic domestic demand. Some analysts predict that MERS will have an economic impact on par with that of the Sewol ferry sinking last year.
Infectious diseases have significant impacts. At the peak of Severe Acute Respiratory Syndrome (SARS) in 2003, China’s economic growth rate fell to 7.9 percent, a sharp drop from a two-digit rate in the previous quarter. Hong Kong saw its growth rate plummet by a fourth at one point. Our government should take preemptive action before the MERS shock wreaks havoc on our economy.
We already saw several ominous indicators for the economy. Despite experts’ forecasts that our exports would decline by 3.6 percent in the first half of this year, exports actually plunged by double digits last month. Moreover, the shock from the weak Japanese currency hurts our domestic consumption and our exports with no signs of improvement ahead.
Last year, the Bank of Korea (BOK) resorted to unprecedented shock therapy - a lowering of the central bank’s lending rates to a record-low one percent range and a drastic easing of loan regulations - as well as increasing the money supply to the market. The government took action to rejuvenate our lackluster economy after it lost momentum in the wake of the Sewol disaster. Now even the faintly glowing embers of economic recovery are dying out due to the MERS outbreak.
The BOK needs to positively consider the idea of lowering interest rates again in a meeting next Thursday. As the U.S. Federal Reserve may be raising its benchmark lending rate in September, the BOK must not miss the proper timing. Though our economy has to wrestle with snowballing household debt, that is a cost it can - and must - handle. More important is the effort to continue to fuel our economic engine.
The government also needs to draw up a revised supplementary budget instead of worrying about fiscal deficits. The weak yen is delivering critical damage to the economy. It is time for the administration to put the supine economy upright through all available means. The menace of MERS demands action from the government.
JoongAng Ilbo, June 5, Page 30