Global credit ratings agency Standard and Poor’s (S&P) revised down South Korea’s economic growth outlook for this year to 1.6 percent from 2.1 percent, joining others in turning more negative about Asia’s fourth largest economy on concerns for severe adverse impacts from the new coronavirus (COVID-19) outbreak.

“Disruption in China will flow to Asia-Pacific through four channels: people flows, supply chains, goods trade, and commodity prices…. Korea is especially vulnerable to supply-chain disruption,” the credit agency said in a report released on Wednesday.

“For now, we expect a hit of about 0.5 percentage point on growth compared to our previous forecast of 2.1 percent for 2020,” it added, warning that “If value-added intermediate goods exports to China fall by 10 percent for 2020 and cannot be re-routed elsewhere, the direct effect on Korea’s GDP could be roughly equivalent to a 0.7 percentage point decline in growth.”

The agency slashed its forecast for the Asia-Pacific region’s economic growth outlook for this year also by 0.5 percentage point to 4.3 percent, saying “China’s health emergency will disrupt economic activity throughout Asia-Pacific.”

S&P also expected the Bank of Korea to cut its policy rate twice this year to 0.75 percent, with the country’s substantial fiscal easing to help to offset external negative factors.

On Monday, Moody’s Investors Service downgraded its 2020 growth outlook for the Korean economy to 1.9 percent from 2.1 percent.

Nomura Securities on Tuesday projected the first-quarter growth in Korea’s GDP could stop at 0.2 percent on year at best or contract as much as 2.9 percent in the worst scenario. The economy could rebound to manage a 1.8 percent growth for this year if the virus outbreak is contained. But the growth could stop at 1.3 percent or even 0.5 percent if the virus scare lasts most of the year, it predicted.

By Kim Tae-joon and Lee Ha-yeon

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