At the monetary policy board meeting for May on Thursday, the Bank of Korea forecast the local economy to contract in 2020, releasing its revised expected growth rate of negative 0.2 percent.
The revision, announced on Thursday, is far lower than its previous forecast of 2.1 percent back in February, down a whopping 2.3 percent.
"The optimistic scenario would be a small margin of positive growth but in case of the pessimistic scenario, it could result in a relatively large negative growth."
This is the BOK's first negative outlook since 2009 when it said the economic growth for that year would be negative 1.6 percent.
The only two previous times on record that actual GDP shrank were when Korea's GDP growth was negative 1.6 percent in 1980 and negative 5.1 percent in 1998.
Reflecting the grim outlook of the country's economy this year, the Bank of Korea cut its key interest rate to a historic low of point-5 percent, down 25 basis points.
The Bank of Korea slashed its benchmark rate to point-75 percent in March but kept it unchanged for April as the central bank opted to monitor the impact of measures already imposed.
The downgrade reflects contracted business activities both at home and abroad due to the pandemic.
"The rate was cut considering the projected sharp drop in inflation as the effect of the COVID-19 is expected to last a while."
The central bank's monetary policy board noted in a statement that because of the effect of COVID-19, consumption has contracted, exports have slowed and unemployment has risen, particularly in the service sector.
The Bank of Korea's governor said its forecasts assume that the outbreak will peak in the second quarter and then settle down, and that there won't be another large scale outbreak in South Korea.
Eum Ji-young Arirang News.