The Bank of Korea (BOK) said in a statement after the rate-setting meeting that the economy is forecast to contract 0.2 percent this year. It was sharply down from the BOK‘s previous forecast of 2.1 percent growth unveiled three months earlier.
It marked the first time in 11 years since 2009 that the BOK announced a contraction outlook. With the gloomier outlook, the BOK slashed its benchmark interest rate by 25 basis points to a new all-time low of 0.50 percent after cutting it by 50 basis points in March.
BOK Governor Lee Ju-yeol told an online press conference that the growth forecast was based on a scenario that another massive spread of COVID-19 would not break out here while the coronavirus pandemic would peak in the second quarter across the world.
Lee said the South Korean economy may grow slightly under an optimistic scenario while the economy’s contraction may be relatively big under a pessimistic scenario.
South Korea‘s real gross domestic product (GDP), adjusted for inflation, slumped 1.4 percent in the January-March quarter from the previous quarter, marking the biggest fall in over 11 years since the fourth quarter of 2008.
The International Monetary Fund (IMF) expected the South Korean economy to decline 1.2 percent this year, while the state-run Korea Development Institute (KDI) projected a 0.2-percent expansion in 2020.
The Korea Institute of Finance predicted a 0.5-percent diminution of the economy this year. Since the BOK began compiling the GDP data in 1953, the country recorded a negative growth twice in 1980 and 1998 each.
The BOK forecast that the South Korean economy would rebound 3.1 percent in 2021, 0.7 percentage points higher than the previous forecast unveiled three months earlier.
The economy is expected to diminish 0.5 percent in the first half of this year before rising 0.1 percent in the second half.
Private consumption is forecast to slump 3.4 percent in the first half, but it is projected to grow 0.6 percent in the second half thanks to the government’s offer of relief funds to all households.
Facility investment is predicted to increase 1.5 percent this year owing to a recovery in the information technology (IT) industry such as the semiconductor and display panel sectors.
Investment in the construction sector is forecast to reduce 2.2 percent in 2020 on the back of the economic slump and the government’s efforts to control speculative investment in the real estate market.
Export of goods is expected to fall 2.1 percent this year as the IT industry’s recovery would be offset by the weaker global demand and lower price for oil products.
Forecast for current account surplus was set at 57 billion U.S. dollars for this year and 55 billion U.S. dollars for next year respectively.
Outlook for consumer price inflation was prejected at 0.3 percent for 2020 and 1.1 percent for 2021 each as the downward inflationary pressure increased on cheaper crude oil and the economic slowdown.
The number of those employed is expected to expand 30,000 this year and 290,000 next year each. The number of jobs advanced 300,000 last year.