Anxiety is mounting that South Korea, reeling under the prolonged impact of the fast-spreading novel coronavirus, may have no choice but to lower its already modest growth prospects for 2020.
While speculations burgeoned that the central bank may cut its outlook by 0.2 percentage point to 2.1 percent, several global investing institutions set their estimation in the 1 percent range, some going as low as the zero percent range.
The Bank of Korea’s upcoming Monetary Policy Board, slated for Thursday, is seen as the benchmark index amid the flurry of economic conjectures.
BOK Gov. Lee Ju-yeol, who had left to attend the Group of 20 meeting of finance ministers and central bank governors in Saudi Arabia’s Riyadh, made an earlier-than-expected return flight home Monday.
The monetary policymaker urgently summoned a policy meeting and called for close monitoring on the domestic financial and foreign exchange markets, but did not directly mention a possible change in the base interest rate or growth forecast.
To some extent, his silence was taken as a sign that the central bank may be considering tangible actions.
Earlier on Feb. 14, before Korea started to see its sudden surge in COVID-19 infections, Lee took a precautious approach toward drastic moves.
“We should take into account the possible side effects (of further rate cuts),” Lee said, in response to queries as to whether the central bank would take preemptive easing actions, similar to measures taken during the Middle East respiratory syndrome outbreak in 2015.
“Back in 2015, the economy was facing a down cycle, but now it has bounced back from the low point and we expect it to recover.”
BOK data showed Tuesday that the composite consumer sentiment index for February stood at 96.9, down 7.3 points on-month, which was a similar drop as for the MERS crisis in 2015. A CCSI reading below the benchmark 100 means pessimists outnumber optimists.
“The latest figure does not fully reflect the current circumstances as it was tallied before the domestic COVID-19 situation became as serious as now,” said an official.
Meanwhile, the private sector started to pour out pessimistic outlooks for the nation’s economy.
In a report issued Tuesday, NH Investment & Securities claimed that the country’s growth pace for the first quarter will dip to 1.2 percent from the previous 1.9 percent. The brokerage also lowered its estimation for the annual growth rate to 1.6 percent, down 0.1 percentage point.
“It is obvious that real estate and other policies are way down the list now, so the Bank of Korea is likely to inch down the key rate this week,” said analyst Ahn Ki-tae.
Hana Financial Investment predicted that the BOK board will lower the yearly growth pace to 2.1 percent and possibly cut the policy rate by 25 basis points to 1 percent.
“Even if they (the board) choose to freeze the rate this month, the expectations for a rate cut will be carried over to April (until the next board meeting),” it said in a report.
ING Group and Oxford Economics respectively lowered their outlook for Korea’s yearly growth rate to 1.7 percent and 1.8 percent, both down from the previous 2.2 percent. Morgan Stanley even suggested the figure could reach as low as 0.4 percent, depending on the turnout of the epidemic.
The National Assembly Budget Office also suggested earlier that Korea will see its yearly growth pace sink 0.22 percentage point for every 1 percent fall in China’s growth rate.
The International Monetary Fund announced Saturday that its forecast for China’s economic growth this year will be lowered to 5.6 percent, down 0.4 percent from the prior figure.
By Bae Hyun-jung (email@example.com