BOK cuts Korea’s 2020 growth outlook to -0.2 percent

Key rate slashed to another record low of 0.5 percent

The Bank of Korea (BOK) said Thursday it had downgraded its 2020 growth outlook for Korea from 2.1 percent to a contraction of 0.2 percent due to the prolonged aftermath here and abroad of the ongoing COVID-19 pandemic.

This is the first time in 11 years for the central bank to forecast an economic contraction.

The outlook comes as the coronavirus outbreak has cast a longer-than-expected shadow over the local economy, freezing domestic consumption and causing a sharp decrease in exports, the BOK said

It expects the economy will continue to remain in a slump for the time being due to the global spread of COVID-19. The BOK last predicted an economic contraction in July 2009 when the economy was hit hard by the global financial crisis.

As the virus-sparked economic downturn is unlikely to push prices up, the central bank will maintain its current monetary easing policy throughout the year, it added.

The central bank also slashed a key interest rate by 25 basis points to another record low of 0.5 percent, in a move to vitalize the sluggish economy.

The BOK’s monetary board members reached a consensus in cutting the rate as the economy is expected to remain in the doldrums amid the prolonged growth slowdown due to the pandemic.

“We decided to lower the benchmark rate to near zero percent as the GDP growth outlook and rate of inflation will decline due to the longer-lasting impact of COVID-19,” BOK Governor Lee Ju-yeol said during an online press conference.

The decision came amid a dismal outlook for a near-term rebound of the economy as virus-induced uncertainties remain in place due to the spread of COVID-19, he added.

Yonsei University economist Sung Tae-yoon said it was evident that the Korean economy would contract in 2020 due to nosediving exports, the key driver of the country’s growth.

“Starting from the second quarter of 2020, export indices have been worsening and this will cut the annual GDP growth to the minus range,” he said.

But he also left open the possibility that the economy might not contract if the coronavirus spread subsides rapidly or the government takes “very aggressive” steps to “rev up” sagging growth.

“However, it is highly likely that GDP growth will turn into the minus range in 2020 under the current circumstance,” he said.

“Against the backdrop, it is not surprising that the BOK cut the base rate to another record low at a time when economic conditions here are getting worse and worse and the growth outlook keeps declining.”