South Korea's central bank has slashed its growth forecast for the local economy this year as it braces for a surge in COVID-19 cases.
At the monetary policy board meeting for August on Thursday, the Bank of Korea forecast the country's economy to shrink one.three percent this year, which is a downward revision from its previous estimate in May of a point-two percent contraction.
"When compared to the previous prediction in May we have lowered the outlook because South Korea's exports have been slower than expected and the country is once again seeing a surge in infections."
The cut also reflected no improvement in private consumption and huge job losses.
The bank's governor added that the prediction was based on the premise that the government will maintain the current level two social distancing measures.
South Korea's economy has only contracted twice before: in 1980 when GDP growth was minus one.six percent, and in 1998, when it was negative five.one percent.
Despite downgrading its growth outlook, the Bank of Korea on Thursday kept its all-time low interest rate steady at half-a-percent. Experts point to the overheated real estate market as the reason not to cut the rate further.
"If the interest rate is lowered further, liquidity will surge and there are problems associated with that. For that reason, the central bank is likely to keep the rate at zero.five percent."
First Vice Minister of Economy and Finance Kim Yong-beom said volatility in the financial market will be greater than ever depending on the development of the outbreak.
He added that the government will prepare thoroughly in case of a prolonged outbreak and will go all out to strengthen the weak links in South Korea's economy.
Eum Ji-young, Arirang News.