South Korea's economy recorded its weakest expansion in six years in the second quarter, battered by a deadly virus outbreak, dry weather and poor exports, adding pressure on lawmakers to swiftly pass a pending supplementary budget.
South Korea’s economy recorded its weakest expansion in six years in the second quarter, battered by a deadly virus outbreak, dry weather and poor exports, adding pressure on lawmakers to swiftly pass a pending supplementary budget.
The economy grew just 0.3 percent in April-June over the previous quarter, the Bank of Korea (BOK) estimated on Thursday, the slowest since the first quarter of 2009 as consumption was pummelled by an outbreak of Middle East Respiratory Syndrome (MERS).
The data follows 0.8 percent growth in the first quarter on a sequential basis while the median forecast from a Reuters survey was 0.4 percent.
“We’re seeing local consumption coming back but it’s going to take some time for tourism to recover past levels,” said Jeon Seung-cheol, director general of the central bank’s economic statistics department.
“As for the drought, increasing rainfall has helped us reach a turning point but the effects still remain as some farm product prices are higher than last year’s.”
Huh Jae-hwan, an economist at Daewoo Securities said it would be difficult for the economy to grow by over 1 percent in the following quarters, the government’s current target.
The economy expanded 2.2 percent in the June quarter from a year earlier, slowing from 2.5 percent growth in the first quarter.
Private consumption fell 0.3 percent in quarterly terms, marking the sharpest fall since the second quarter of 2014 as MERS infected 186 people, 36 of whom died. BOK Governor Lee Ju-yeol said the decline in the tourism industry from MERS would cut 2015 GDP growth by 0.1 percentage point.
The outbreak has since died down, but visitors have been slow to return. “Only two to three buses come a day now, when before MERS we saw 100 daily,” said a manager at Seoul’s Dongwha Duty Free. “Just because they say on TV MERS is gone doesn’t mean the tourists are going to come back overnight. We think things will turn around starting August.”
The bank’s base rate currently stands at 1.50 percent while it sees 2.8 percent growth this year.
Huh said it would be unlikely for the central bank to cut rates again, given mounting household debt.
Thursday’s data showed the drought cut farm output by 11.1 percent in the second quarter versus the first, its worst fall since the first quarter of 1990.
Exports continue to struggle with no clear sign of a pickup.
($1 = 1,156.5100 won)