South Korea's economy is recovering from the second-quarter slump triggered by the Middle East Respiratory Syndrome outbreak, but weak exports are weighing on its growth, the finance ministry said Tuesday.

In its latest economic report called the Green Book, the ministry said consumer spending, business investment and hiring all showed signs of improvement in July as the MERS scare waned. The viral disease, first confirmed on May 20, has claimed 36 lives and infected 186 people, although no new cases have been reported since July 4. The outbreak dampened private consumption by pummeling the retail and tourism sectors.

In July, the number of jobs created remained above the 300,000-mark, with employment rising from a month earlier, the ministry said. Facility investment expanded for the second month in a row in July, while retail sales grew 1.9 percent on-month, up from minus 3.5 percent contraction tallied in June.

"More jobs were created in the manufacturing sector and service-related businesses recovered gradually, with more investments going into machinery and transportation equipments," it said.

The data also showed outbound shipments and industrial output all contracting, while weak growth in consumer prices is raising deflationary concerns.

Industrial output for all industries backtracked 0.5 percent on-month in July, down from 2.5 percent growth reported for June.

Exports that contracted 3.4 percent on-year in July nosedived 14.7 last month, mainly due to problems in China and emerging markets.

The ministry said South Korea's financial sector took a beating in August from the China shock and Beijing's decision to devalue the yuan. Such developments were compounded by concerns that the U.S. Federal Reserve will raise interest rates in the near future.

On future prospects, the ministry said that while the ill effects of MERS is clearly on the wane, there is a wait-and-see stance among businesses as they gauge the effects of the government's extra budget and expansionary fiscal policies.

There must be a concerted push to implement sweeping reforms in the labor, financial, education and public sectors that can send a positive message to the market, it said.

"The government plans to keep close tabs on financial, foreign exchange and external market developments so it can respond quickly and decisively to cope with fallouts," it said. (Yonhap)