The MERS outbreak could have a big impact on Korea’s economy

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The negative media coverage surrounding the Middle East Respiratory Syndrome (MERS) outbreak could hurt the already weak South Korean economy.

MERS hit South Korea in late May. Since then, around 64 cases of infection have been confirmed. Six have died and around 2,000 people are quarantined.

Assuming the situation will be contained in one month, “we expect retail sales to drop 10% and restaurant sales decline 15% in the current month, but tourism would fall 20% for two months because it will take longer for tourists to come back. That could cut 2Q-3Q growth by about 0.5% and annual GDP by 0.15%,” writes Morgan Stanley’s Sharon Lam.

And if the outbreak gets out of control, “the Korean economy would tumble into recession. … That would slash 2Q-3Q GDP growth by 3.0% and annual GDP by 0.8%.”

However, things could get even worse if there’s long-lasting negative media coverage of the outbreak.

“We are concerned that negative news headlines could remain for a while, even if the disease dies down, an that could take a toll on consumer sentiment,” writes Lam.

She likens the current MERS outbreak to last year’s Sewol Ferry tragedy, where 304 people (mostly high school students) were killed after the boat sank. For months after, negative media coverage blamed the government for the tragedy, which really hurt consumer sentiment.

“If consumer sentiment is hurt substantially again, we are worried that it could kill the recovery momentum and that the economy could get into a vicious downward cycle,” writes Lam.





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