SEOUL: South Korea’s economy is expected to suffer its first annual contraction since the 1990s as a result of the coronavirus, the central bank forecast Thursday as it cut interest rates to a record low.
The world’s 12th-largest economy will shrink 0.2%, the Bank of Korea (BOK) predicted a dramatic downgrade from the 2.1% growth it had forecast in February.
The BOK cut its key interest rate by 25 basis points to 0.5%, joining other central banks moving to try to stem the impact of the pandemic, which analysts say threatens to cause a global recession.
“The growth of the domestic economy has slowed significantly” due to the coronavirus and is expected to be sluggish and unpredictable in future, the central bank said in a statement.
“The employment situation has deteriorated,” it added, with many in the service sector losing jobs, while “exports fell significantly”.
It is the second rate cut in three months, after a surprise 50-basis-point reduction to 0.75% in March.
The South is highly trade-dependent and saw its worst economic performance in more than a decade in the first quarter as the epidemic struck.
Gross domestic product shrank 1.4% year-on-year during the January to March period, its biggest decline since the fourth quarter of 2008 during the global financial crisis.
The International Monetary Fund (IMF) has forecast the world economy will contract 3% this year, saying it is expected to “experience its worst recession since the Great Depression” over the pandemic.
The IMF has predicted the South Korean economy will shrink 1.2% in 2020.