SEJONG, May 20 (Yonhap) — The coronavirus pandemic is expected to push South Korea’s economy into the deepest slump since the 1998 Asian financial crisis, as the virus takes a heavy toll on the global economy, a state-run think tank said Wednesday.
Under a containment scenario where the global economy recovers in the second half of 2020, South Korea’s economy would be likely to grow 0.2 percent this year, the Korea Development Institute (KDI) said in a report.
It would mark the slowest expansion since 1998, when the nation’s economy contracted 5.1 percent.
Under the worst-case scenario, that the virus is not contained by the end of this year, the KDI expected South Korea’s economy to contract 1.6 percent this year.
In comparison, the International Monetary Fund has predicted that South Korea’s economy will shrink 1.2 percent this year as the global economy is expected to have its worst year since the Great Depression of the 1930s due to the pandemic.
Asia’s fourth-largest economy shrank 1.4 percent on-quarter in the first quarter of the year, marking the sharpest quarterly contraction since the last three months of 2008.’
The KDI painted a bleaker picture on exports, predicting that exports will shrink 15.9 percent this year as lockdown measures around the world crippled demand for Korean goods.
South Korea’s exports fell 10.3 percent last year, hit by a prolonged trade war between the United States and China.
In April, the nation’s exports tumbled 24.3 percent on-year to $36.9 billion. South Korea suffered a trade deficit of $950 million in April, snapping 98 straight months of having more exports than imports.
In the first 10 days of May, exports sank 46.3 percent on-year. The daily average exports during the 10-day period slipped 30.2 percent on-year.
Private consumption is expected to fall 2 percent this year as the service industry takes a big hit from the pandemic, the KDI said.
To prop up the economy, South Korea has promised relief packages worth some 240 trillion won (US$196 billion).
As the government pledged unprecedented amounts of fiscal stimulus, the KDI said there is the need to discuss a plan to increase taxes.
Also, the Bank of Korea (BOK) needs to cut its key rate to near zero and buy state bonds, the KDI said.
In March, the BOK delivered its first emergency rate cut in over a decade, slashing the key rate to a record low of 0.75 percent from 1.25 percent.