Fitch Ratings followed other institutions to turn more negative about the South Korean economy for this year, projecting a deeper contraction of 1.1 percent than the 0.9 percent projected earlier amid the renewed virus outbreak.
Most organizations expect more than a 1 percent fall in the annual gross domestic product of Asia’s fourth-largest economy, which suffered a contraction in the first two quarters. The International Monetary Fund projects the economy to shrink 2.1 percent, the Organization for Economic Cooperation and Development 2.0 percent and the Bank of Korea from 1.3 percent to 2.2 percent depending on the scale of the virus damage.
Fitch, in its economic outlook report released Tuesday, said Korea’s economic recession from the COVID-19 pandemic had been less severe compared to that of other countries. Still, its economic recovery would be slow in the second half, with domestic consumption to remain depressed until the end of the third quarter due to toughened social distancing curbs, it said.
A spike in new coronavirus cases in Korea last month prompted authorities to impose tighter social distancing measures short of a full lockdown. Daily cases have slowly dropped from the August peak of more than 400. The country added 156 new cases on Wednesday, bringing the national tally to 21,588, according to the Korea Centers for Disease Control and Prevention.
Korea’s GDP in the second quarter shrank 3.2 percent from the previous three months, worse than the 1.3 percent contraction in the previous quarter, which Fitch said was mostly due to the economic hardship of Korea’s trading partners.
Inflation was forecast to hover below the central bank’s target of 2 percent. Fitch expected the Bank of Korea (BOK) to maintain its accommodative monetary stance and projected another quarter-percentage cut to come sometime this year.
Korea’s policy rate is currently set at a record low of 0.5 percent.
Fitch also expected the BOK to undertake a bond purchasing program, but at a limited scale.
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