June 04, 2015 10:54
Two major obstacles threaten to undermine the government's efforts to jump-start the sputtering economy after the Bank of Korea lowered the base interest rate to a record-low 1.75 percent.
Korean exporters are reeling from the weak Japanese yen, which makes their products more expensive in key overseas markets. On top of that, the outbreak of Middle East Respiratory Syndrome here has raised fears that already-weak private consumption will take another direct hit.
Health officials have failed to contain the outbreak in its initial stage and top economic officials do not appear to realize the seriousness of the situation and have yet to come up with emergency measures.
The government's attitude is reminiscent of the ferry disaster in April of last year. At that time, top economic officials forecast only a limited impact on the economy, only to be proved wrong as private consumption slowed to a trickle as Koreans refrained from dining out and spending money in the months following the tragedy.
◆ Weak Yen
The Japanese currency closed at W891.97 per 100 yen on Wednesday, the lowest since February 2008. The weak yen has caused Korea's double-digit export growth to come to a grinding halt this year, while a faltering economy in China, Korea's top export market, has also wreaked havoc on outbound shipments. Exports in May fell 10.9 percent compared to the same period of 2014, marking five consecutive months of declines.
The impact is clearly evident in overseas markets. Hyundai Motor's May sales in the U.S. fell 10.3 percent on-year. The lackluster performance sent Hyundai shares down 10.36 percent on Tuesday and another two percent on Wednesday.
In contrast, Subaru and Mitsubishi's May U.S. sales rose 12 and 32 percent. Buoyed by the weak yen, Japanese shipbuilders rose to the top spot in terms of orders for the first time in seven years in January.
The number of tourists visiting Japan surpassed the number visiting Korea. In the first four months of this year, 5.89 million tourists went to Japan compared to 4.59 million in Korea.
◆ MERS Shock
A prolonged MERS crisis is expected to cause private spending to grind to a halt as consumers opt to stay home. After the SARS outbreak in early 2003, China's economic growth slowed to 7.9 percent in the second quarter compared to 10.8 percent in the first quarter. Hong Kong's GDP shrank 0.9 percent after expanding 4.1 percent in the previous quarter.
The government faces growing calls to come up with emergency measures. Lee Seung-cheol, vice chairman of the Federation of Korean Industries, said, "Our economy is facing a double whammy as the MERS crisis compounds dwindling exports and slow private spending."
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