SEOUL, 28 May 2020 – The Bank of Korea (BOK) today sharply slashed its growth outlook for the year, projecting a 0.2% year-on-year contraction amid the Covid-19 pandemic, which would mark the slowest growth in over two decades, the Yonhap news agency reported.
The latest outlook for Asia’s fourth-largest economy is a sharp cut from its earlier estimate of a 2.1% expansion this year and last year’s 2% gain.
The sharp reduction from the February estimate follows the extensive spread of the new coronavirus that has infected more than five million people globally.
“The board expects that domestic economic growth will remain sluggish for some time due to the impact of the Covid-19 pandemic. GDP (gross domestic product) growth is projected to fall considerably below the February forecast of 2.1% to around 0%, and uncertainties around the future path of GDP growth are also judged to be very high,” the BOK said in a statement on its latest monetary policy decision.
BOK governor Lee Ju-yeol said the country’s economic growth may further slow down, depending on the future course of the Covid-19 pandemic.
“Because the uncertainties regarding the spread of Covid-19 and its impact continue to remain very high, we cannot but review conditions based on assumptions about the future course of Covid-19,” he told a press conference, adding that the latest growth estimate of a 0.2% contraction is based on what he called the “basic scenario”.
“It is based on an assumption that the pandemic will reach its peak in the second quarter globally, and that there will not be any major second wave of the virus in the country,” Lee said.
Under a different scenario where the pandemic can be terminated at an earlier date, the country’s economic growth may turn positive this year.
But under a gloomier scenario, where the peak in the pandemic is delayed and South Korea faces a second spike, the country’s economy may shrink by a “much greater margin”, Lee said.
Given grim the economic outlook, the central bank slashed the base interest rate by a quarter percentage point to a record low of 0.5%.
The spread of the virus in other parts of the globe is beginning to take a heavy toll on the country’s export-dependent economy.
South Korea’s outbound shipments plunged 24.3% year-on-year last month, leading to its first trade deficit in over eight years. Its exports inched down 0.2% in March, following a 4.5% year-on-year increase the month before.
Still, a sharp cut in the BOK’s growth outlook had been widely anticipated with many others expecting the local economy to record its worst performance since 1998 when it shrank 5.1% due to the 1997 Asian financial crisis.
The BOK said the South Korean economy had only twice posted annual contractions, in 1980 and 1998, since it began compiling such data in 1953.
The central bank said the country’s economy is expected to rebound next year, forecasting a 3.1% year-on-year growth.
Consumer prices are expected to rise 0.3% this year, followed by a 1.1% growth in 2021, it added.
South Korea’s fight against Covid-19 has been and still is considered exemplary, with many of its steps taken now considered global standards.
The number of infection cases here remained at slightly more than 11,300 as of today, more than four months after the country reported its first confirmed case on Jan 20.