South Korea’s economic contraction will worsen in the current quarter, the central bank forecast Tuesday, as the coronavirus outbreak hits consumer demand and economic activity even harder.
The Bank of Korea predicted the world’s 12th-biggest economy will shrink at least 2.0% in the April-June period over the previous three months.
It already declined 1.3% quarter-on-quarter in the first three months, it said – a slight improvement from its first announcement in April of a 1.4% contraction, but still the biggest drop in gross domestic product since the 2008 global financial crisis.
South Korea endured one of the worst early outbreaks of the coronavirus outside mainland China, and while it never imposed a compulsory lockdown, strict social distancing was widely observed from March until it started loosening restrictions last month.
Private consumption decreased 6.5% in January-March from the previous quarter “as expenditures on goods and services both decreased,” the BOK said.
The country appears to have brought its epidemic under control thanks to an extensive “trace, test and treat” program and life is beginning to return to normal.
But the BOK forecast last week that the economy will shrink 0.2% in 2020, a dramatic downgrade from its February forecast of 2.1% growth, and cut interest rates to a record low.
The International Monetary Fund (IMF) has estimated 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% this year.