SEOUL-South Korea’s government revised down its 2020 economic growth outlook to 0.1 per cent Monday owing to expected economic fallout from the COVID-19 outbreak across the world. The Ministry of Economy and Finance said that real gross domestic product (GDP), adjusted for inflation, is forecast to grow 0.1 per cent this year. It was sharply down from the ministry’s previous expectation of 2.4 per cent expansion unveiled six months earlier. The real GDP increased 2.0 per cent in 2019, after expanding 2.7 per cent in 2018.

The ministry’s outlook is higher than the Bank of Korea (BoK)’s forecast. The BoK expected the economy to contract 0.2 per cent this year, much lower than the bank’s previous expectation of 2.1 per cent growth. With the gloomier outlook, the BoK slashed its benchmark interest rate by 25 basis points to a new all-time low of 0.50 per cent last week. The central bank lowered the key rate by 50 basis points in March. The country’s real GDP dived 1.4 per cent in the January-March quarter from the prior quarter, marking the biggest quarterly fall in over 11 years since the fourth quarter of 2008. The International Monetary Fund (IMF) expected the South Korean economy to plummet 1.2 per cent in 2020, while the state-run Korea Development Institute (KDI) projected a 0.2-per cent increase this year. Since the BOK began compiling the GDP data in 1953, South Korea recorded a negative growth only twice in 1980 and 1998.

The ministry said domestic economic activity would be sluggish amid the worsening of sentiment among consumers and businesses while export would face difficulty on the exacerbating external situations. However, it noted that the government’s efforts to reinvigorate private consumption and facility investment through expansionary fiscal policy would buffer downside risks to the economy. The government unveiled a total of 250 trillion won (200 billion U.S. dollars) worth of measures to financially support microbusiness owners, small and big companies that were hit hard by the coronavirus pandemic. It spent fiscal money to encourage companies to maintain workforce, while providing relief grants for all households to bolster consumer spending.

To finance the expansionary fiscal policy, two supplementary budget plans worth 11.7 trillion won ($9.5 billion) and 12.2 trillion won ($10 billion) each were passed through the parliament earlier this year. The finance ministry planned to submit its third extra budget plan to the National Assembly later this week. Private consumption is forecast to decline 1.2 per cent in 2020 before recovering 4.5 per cent in 2021.

The consumer spending is projected to gradually recover this year, but risk factors would remain such as the falling number of travelers to South Korea, the household income reduction from the worsening of labour market conditions, and the weakened sentiment among economic subjects, the ministry said. The ministry expected the economy to increase no job this year before adding 250,000 jobs next year. The number of jobs expanded 301,000 last year. Job creation in the services industry would be in trouble because of the negative effect from the COVID-19 outbreak, while employment among exporters would be negatively influenced by an export fall.

Export, which accounts for about half of the export-driven economy, is projected to decline 8.0 per cent this year before rebounding 8.5 per cent next year. The export diminished 10.4 per cent last year. Outlook for current account surplus was set at 58 billion U.S. dollars for this year and 56 billion U.S. dollars for next year respectively. Facility investment is expected to grow 1.7 per cent this year and 6.0 per cent next year each, but investment in the construction sector is predicted to fall 1.0 per cent this year and rise 0.5 per cent next year respectively. Consumer price is forecast to rise 0.4 per cent this year and 1.2 per cent next year each on the back of low demand-side inflationary pressure and lower global commodity price.