South Korea has cut its economic growth forecast for 2015 due to the Middle East Respiratory Syndrome (MERS) outbreak, which is expected to severely affect the key tourism sector and consumer spending.
The country's finance ministry now expects the economy to grow at 3.1%, down from the previous forecast of 3.8%. The ministry attributed the cut in outlook to the MERS outbreak and drought.
It also expects lower consumer price inflation of 0.7%, compared to the earlier forecast of 2%.
"Even after the MERS outbreak calms down, there could be a negative impact on the entire economy," Finance Minister Choi Kyung-hwan was quoted as saying by the Associated Press.
"We can't say the MERS situation has completely come to an end unless the economy revives."
The ministry also said it is planning more than $13.5bn (£8.6bn, €12bn) additional spending to ensure that the growth rate stays above 3 percent. The stimulus, which will be funded by bond issuance and state-run funds, is expected to help businesses hit by the MERS outbreak as well as a recent drought.
Exports are forecast to decline by 1.5% in 2015 and imports are projected to contract by 7%. Current account surplus is expected to be $94bn in 2015, compared with $89bn in 2014 and an earlier projection for 2015 of $82bn.
The South Korean central bank (BOK) earlier cut its benchmark interest rate to combat the negative impact on the economy due to the viral illness.
The outbreak could limit inbound and outbound trips, as citizens are advised against travelling. Neighbouring travel destinations such as Hong Kong, Macau and Taiwan have already issued alerts.
Consumption of goods and services is likely to decline as locals stay home and visitors delay travel plans to the country, dampening hopes of an economic recovery.
The disease has so far infected 180 people and killed 29, according to the country's health ministry.