SEJONG, June 10 (Yonhap) — South Korea’s economy is expected to contract 1.2 percent this year as the coronavirus pandemic and lockdown measures ravaged global trade and consumption, the Organization for Economic Cooperation and Development (OECD) said Wednesday.
The updated prediction, which would be the sharpest contraction since the 1998 Asian financial crisis, marked a sharp downgrade from the OECD’s March forecast of 2 percent expansion.
The latest OECD forecast is bleaker than a prediction by the Bank of Korea (BOK), which forecast the Korean economy to contract 0.2 percent this year.
The OECD forecast is in line with a prediction by the International Monetary Fund, which expected the Korean economy to shrink 1.2 percent this year.
South Korea saw hundreds of daily new infections in late February and early March, but appeared to bring the outbreak under control. Still, concerns persisted as cluster infections have continued to emerge in Seoul and its neighboring areas.
“Due to an effective strategy to contain the spread of the virus, the government limited the damage to the domestic economy and output is shrinking less than in any other OECD country,” it said.’
However, if South Korea is hit by a second wave of infections, the nation’s economy would contract 2.5 percent this year, the OECD said.
In a dire outlook, the OECD expected the world economy to contract 6 percent this year, marking the worst contraction since the Great Depression in the 1930s.
Last week, South Korea proposed its third extra budget plan worth 35.3 trillion won (US$29 billion) that will help key industries cushion the economic blow from the coronavirus pandemic and protect jobs.
The biggest-ever budget will raise the total of the nation’s stimulus packages to 270 trillion won as the government has stepped up fiscal and monetary responses to the pandemic.
South Korea has pledged to keep an aggressive fiscal policy to fight the pandemic, which will push up the debt-to-GDP ratio to 43.5 percent this year, compared with some 40 percent before the virus.
The OECD said South Korea’s fiscal policy still has room to support the economy.
“Low government debt provides fiscal space, despite the already sizeable increase in public spending,” the OECD said.
South Korea’s export-reliant economy is expected to suffer a bigger hit from the pandemic as the novel coronavirus disrupted global businesses and ravaged consumer demand.
Exports dropped for the third consecutive month in May due to the growing economic fallout from the pandemic. Outbound shipments dipped 23.7 percent to hit $34.8 billion last month, compared with $45.7 billion posted a year earlier.
To shore up the economy, the BOK slashed its policy rate by a quarter percentage point to a record low of 0.50 percent.