South Korea’s economy is expected to suffer its first annual contraction since the 1990s as a result of the COVID-19 pandemic, the Bank of Korea forecast yesterday as it cut interest rates to a record low.
The world’s 12th-largest economy is to shrink 0.2 percent, the central bank said, a dramatic downgrade from the 2.1 percent growth it had forecast in February.
The bank cut its key interest rate by 25 basis points to 0.5 percent, joining other central banks moving to try to stem the economic effects of the pandemic, which analysts have said threatens to cause a global recession.
“The growth of the domestic economy has slowed significantly” due to the novel coronavirus, and is expected to be sluggish and unpredictable in the future, the central bank said in a statement.
“The employment situation has deteriorated,” with many in the service sector losing jobs, while “exports fell significantly,” it said.
It is the second rate cut in three months, after a surprise 50 basis-point reduction to 0.75 percent in March.
South Korea is highly trade-dependent and saw its worst economic performance in more than a decade in the first quarter as the pandemic struck.
GDP shrank 1.4 percent year-on-year in the January-to-March period, its biggest decline since the fourth quarter of 2008 during the global financial crisis.
The IMF has forecast that the global economy would contract 3 percent this year, saying that it is expected to “experience its worst recession since the Great Depression” because of the novel coronavirus.
The IMF has predicted that the South Korean economy would shrink 1.2 percent this year.
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