COVID-19 may push economy into L-shaped slump: S. Korea’s 1st Vice Fin min

2020.03.17 09:19:43 | 2020.03.17 09:20:27

[Photo by The Ministry of Economy and Finance]이미지 확대

[Photo by The Ministry of Economy and Finance]

Global economy may fall into a long-term recession due to the fast spread of the new coronavirus across the world that would last longer than expected, South Korea’s top financial official warned, hinting at the country’s stronger economic and market stabilization measures.

“The world economy is not expected to bounce back in a V-shaped recovery, a steep recovery after a short-term shock that had been seen during the previous infectious epidemics,” First Vice Finance Minister Kim Yong-beom said on Monday during a meeting with the chiefs of economy-related agencies in Seoul. “Concerns are growing that even a U-shaped recovery or L-shaped recession may follow” due to COVID-19 outbreaks, which was declared as a pandemic last week.

Amid growing fears that the virus would have a complex impact on the global economy, the Korean government will undertake a stress test on the financial system and the foreign exchange sector by assuming an unprecedented crisis and thoroughly examine all available policy measures, Kim said.

Kim’s remarks represented a wholly different economic outlook from the country’s previous stance, suggesting that a modification to the government’s overall policy direction will be inevitable under a worst-case scenario.

Earlier in January, the government assessed that Asia’s fourth largest economy made a successful V-shaped rebound thanks to the solid recovery in employment, and expected a dramatic turnaround in the country’s economy this year, driven by a recovery in semiconductor prices.

On March 5, the government still anticipated that the ongoing fight with coronavirus in Korea would be completed withing the first quarter.

But Kim said the economic activity has contracted significantly amid the virus outbreak, and the global economic shock from the virus that is now sweeping the world has come into reality.

In order to stabilize its stock market, Korea took emergency measures last week, including a suspension on the stock short selling for the duration of six months and upping the cap on a company’s treasury stock purchase.

Kim added that the government will closely monitor foreign currency liquidity, while proactively preparing concrete countermeasures and taking appropriate measures such as liquidity supply if necessary.

In a separate move, the country’s central bank on Monday cut the benchmark rate by half a percentage point to a fresh low 0.75 percent to cushion the economic shock from the coronavirus pandemic. This was the Bank of Korea’s (BOK) first extraordinary policy move since October 2008 when the bank delivered an unscheduled cut of 75 basis points at the height of the global financial crisis.

By Lee Ji-yong and Minu Kim

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