South Korea's central bank cut its 2015 economic growth forecast for the third time this year on Thursday, while keeping its benchmark interest rate unchanged at a record low of 1.5 percent. Citing sluggish exports and weak domestic consumption - exacerbated by an outbreak of Middle East Respiratory Syndrome (MERS) that has killed 35 people - the Bank of Korea (BOK) lowered its forecast from 3.1 percent growth to 2.8 percent.
The bank had previously cut its forecast from 3.9 percent to 3.4 percent in January and down again in April to 3.1 percent. "Exports were weaker than expected and fallouts from the MERS outbreak had a negative impact on consumer sentiment," central bank governor Lee Ju-Yeol said. Economic growth in the quarter to June was put at just 0.4 percent. The MERS virus infected 186 people in Asia's fourth-largest economy since the first case was reported on May 20, in the largest outbreak outside Saudi Arabia.
Local businesses including shopping malls, restaurants and cinemas reported a sharp drop in sales as people shunned public venues with large crowds. "Looking at the Korean economy ... consumption has declined significantly and the sentiments of economic agents have worsened," the BOK said in its policy statement Thursday. The bank "forecasts that the domestic economy will show a trend of recovery going forward ... but judges the uncertainties surrounding the growth path to be high," it added.
The government announced last week a 22 trillion won ($19.8 billion) stimulus package, much of which was aimed at supporting businesses hurt by the MERS crisis. The decision to freeze the bank's benchmark interest rate at 1.5 percent was widely expected after a cut of 0.25 basis points last month.
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