Seoul, May 28 (efe-epa).- The Bank of Korea (BoK) estimated Thursday that South Korea’s gross domestic product (GDP) will contract this year by 0.2 percent due to the coronavirus pandemic, and decided to cut interest rates by 25 basis points to an all-time low of 0.5 percent.
The recent forecast comes in stark contrast to its predictions in February when the virus had not yet spread globally.
The bank had then estimated that Asia’s fourth-largest economy would grow by 2.1 percent in 2020.
“There is considerable uncertainty surrounding the economic outlook as it depends on how the “Covid-19 situation develops,” the bank said in a statement after a board meeting.
Governor Lee Ju-yeol said at a press conference on Thursday that the current estimate was based on the belief that the pandemic would peak globally in the second quarter and that there would be no second major wave of infections in the country, Yonhap news agency reported.
The spread of the novel coronavirus around the planet is beginning to greatly affect South Korean exports, the main pillar of the country’s economy.
Shipments from South Korea, one of the countries that have best controlled the Covid-19 infections, fell by almost 25 percent year-on-year in April when it recorded its first trade deficit in eight years.
In a unanimous decision by the governing board, the BoK cut the interest rates to an all-time low of 0.5 percent to ease the current situation.
However, the bank statement also underlined that global trade growth was projected to gradually improve from the second half of the year.
“Trade in services has contracted sharply, while trade in goods is also declining. However, global trade is expected to recover gradually as the global economy recovers,” it said.
The recent central bank rate cut and revision in the forecast have been along expected lines. Most experts believe that the South Korean economy will experience its worst year since 1998 when the GDP contracted by 5.1 percent due to the effects of a financial crisis in Asian markets. EFE-EPA