South Korea projected the economy to do its worst in more than two decades under virus pandemic impact, but vowed to keep grow in the positive territory through unprecedented fiscal spending and policy stimuli.

In its revised economic outlook for the blueprint for economic policy for the second half, the government estimated a growth 0.1 percent, slashed from previous forecast of 2.4 percent, for this year.

The estimate has factored in the government’s record spending plan and all-out stimuli actions backed by record-low interest rate and hopes the threat from coronavirus outbreak will die down in the second half, according to the Ministry of Economy and Finance release on Monday.

Deputy prime minister and finance minister Hong Nam-ki in a separate briefing admitted an economic contraction is possible if conditions do not pick up.

The Bank of Korea last week estimated a negative growth of 0.2 percent for this year, which would be the first contraction in 22 years. Under the worst scenario, it predicted 1.8 percent decline.

The finance ministry said its grim economic outlook for this year reflected the sluggish domestic spending and investment in the first half of this year due to the COVID-19 outbreak that has also disrupted economic activities across the globe, leading to a plunge in the export-reliant country’s outbound shipments.

The latest outlook also took account of the potential risk of additional shocks in the second half, such as new community infections and new waves of coronavirus during winter, it added.

The finance ministry projected the country’s private spending for this year would contract 1.2 percent from a year ago and construction investment 1.0 percent. But facility investment is forecast to increase 1.7 percent.

The COVID-19 pandemic is also expected to negatively affect the country’s employment sector.

The government projected zero new job addition this year versus its earlier forecast of 250,000 job additions. Employment rate for those aged between 15 and 64 was adjusted from 67.1 percent to 66.4 percent for this year.

The ministry also lowered its inflation outlook for this year by 0.6 percentage point from its previous outlook in December. It projected consumer prices would increase 0.4 percent this year, similar to last year’s level, due to falling international raw materials prices and sluggish domestic spending.

The country’s exports will likely take the hardest hit from the pandemic after most countries have been forced to shut down businesses and ban people’s move to slow the spread of virus infections, impairing demand in the world. However, as imports are expected to drop faster than exports this year, Korea is expected to post surplus in current account.

The government projected Korea’s exports would fall 8.0 percent this year from a year ago and imports 8.7 percent, recording a current account surplus of $58 billion, slightly down from last year’s $60 billion.

The ministry, however, expected that the government’s slew of measures to revive domestic demand and investment, as well as to aid ailing businesses and shaky financial markets must buffer the economic downside risk. The government has introduced aggressive expansionary fiscal policies including two supplementary budget plans and is working on the third extra budget in more than $20 billion to fight the economic fallout from the COVID-19 outbreak.

It forecast the country’s economy in 2021 will expand 3.6 percent on the back of a sharp recovery in demand. It projected private spending to increase 4.5 percent next year and facility investment 6.0 percent. Also, 250,000 jobs is projected to be added in 2021, slightly lower than 2019. Employment rate is also forecast to return to the previous year’s level at 66.8 percent.

Exports are expected to grow 8.5 percent next year and imports 9.2 percent, allowing Korea to post a surplus of $56 billion.

By Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]