South Korea has lowered its economic projections for 2020 to growth of just 0.1 per cent, forecasting the worst economic performance since the 1998 Asian financial crisis.
The new projection is down from a previous one of 2.4 per cent, made before the Covid-19 outbreak. It comes after a 250trn won ( approx £165bn, $204bn, €184bn) stimulus package in the country, to attempt to combat the economic damage from the virus, an amount which represents 13.1 per cent of gross domestic product.
The 0.1 per cent prediction is slightly better than an expected 0.2 per cent contraction seen by the Bank of Korea (BOK), and a 1.2 per cent decline expected by the International Monetary Fund.
South Korea’s economy saw a 2.0 per cent growth last year and the new growth target would be the slowest in the country since the 5.1 per cent contraction seen in the 1998 Asian financial crisis.
Apart from the coronavirus crisis, tensions between China and the US over Beijing’s policy on Hong Kong could further hinder recovery, the nation’s finance ministry said.
“(The coronavirus outbreak) led to an unprecedented slump in domestic demand, which maximised fears and caused shock in financial and labour markets,” South Korean deputy finance minister Bahng Ki-sun told a briefing on Monday, June 1, 2020.
“Recovery in domestic demand will likely be limited due to deepening slump in external demand and uneasy sentiment, and can worsen if the second wave materialises ahead of winter,” he added.
Breakdown of forecasts showed private consumption for the whole of 2020 is expected to fall 1.2 per cent from 2019. Exports are also expected to shrink 8.0 per cent, sharply down from 3.0 per cent growth seen earlier.
The BOK cut its policy rate to a record low last week, working in line with the government to extend liquidity to businesses hit by the coronavirus pandemic.