Citi on South Korea coronavirus fears, impact on economy and BOK

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A hospital staff member with a patient at a medical center in Daegu, South Korea on February 20, 2020.

Seung-il Ryu | NurPhoto | Getty Images

South Korea is on high alert after the number of reported coronavirus infections surged past 760 cases on Monday, and Cit economists warn economic difficulties for the country will be imminent.

“Fear of the virus is spreading throughout the country, at a much faster rate than the virus itself,” Marie Kim and Jeeho Yoon from Citi wrote. “We expect the economic fallout to not be limited to certain regions (and) cities.”

The total number of cases rose to 833 on Monday afternoon, compared to 31 cases reported as of Feb. 18, according to the Korea Centers for Disease Control and Prevention. That’s a jump that’s nearly 27 times higher — within about one week. Most of the new cases were detected in the city of Daegu and the surrounding Gyeongbuk area. The country’s death toll rose to seven on Monday morning and remained unchanged in the afternoon update.

In a Monday morning note, the Citi economists explained that consumption in the country is declining as part of people’s efforts to minimize human contact. Stores and factories are also shutting down for various reasons, including fear of exposure to the virus, lack of supply inputs or due to continuing loss, the Citi economists said.

On Sunday, the government raised the virus alert to its highest level — red — and stepped up quarantine measures to slow the virus’ spread. The same day, the education minister also said the new school year, due to start next month, will be postponed, Yonhap reported. More such measures are likely to be announced, experts said.

Kim and Yoon said they expect the government to introduce a large supplementary budget to mitigate the economic fallout ahead of April elections. “Previous events suggest that the government tends to respond quickly to natural disasters or virus outbreaks,” the Citi economists said.

Read: For up-to-the-minute coverage on the coronavirus, visit the blog from CNBC’s Asia-Pacific team.

Stocks in South Korea sold off Monday, with the benchmark Kospi falling more than 3% and the Kosdaq off by more than 4%. The Korean won weakened against the dollar. The dollar-won pair was trading up 0.85% at 1,217.13 as of 5:17 p.m. HK/SIN, rising from levels near 1,180 in the previous week. Investors will be watching for moves made by the Bank of Korea, which is set to meet on Feb. 27 and announce its rates decision the day after.

Globally, the pneumonia-like virus has infected more than 77,000 people and killed over 2,500 people, mostly in China. It was first detected in Wuhan, the capital of Hubei province, and has since spread to more than 25 countries. Experts warned about the economic impact from the virus after quarantine measures had kept most of China on an extended break after Lunar New Year, as factories remained closed for a longer period of time and people stayed at home.

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