Korean economy to contract 2.3 percent in 2020: KERI

By Kim Bo-eun

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Korea's economy is forecast to shrink by 2.3 percent this year, amid worsening outlooks for exports and domestic demand triggered by the coronavirus pandemic, according to a local think tank, Wednesday.

The Korea Economic Research Institute (KERI) put forward the first projection of a contraction for the economy as a local institution. The new forecast was down from an earlier prediction late last year of 1.9 percent growth.

A contraction of 2.3 percent would be the worst decline in Korea's growth rate since 1998, when the economy shrank by 5.1 percent due to the Asian Financial Crisis that hit the country in 1997.

KERI's revised projection is based on worsening circumstances as the virus continues to spread in major economies including the U.S. and countries in Europe.

"External circumstances take up a large part of the revised forecast, but domestic conditions also look bleak," said Lee Seung-suk, a senior research fellow at KERI.

The report stated the government's efforts to cushion the blow from the virus will fall short, due to a virtual freeze on domestic production and consumption, on top of worsened conditions that have developed over the long term.

Externally, Korea faces the impact of contractions in major economies including the U.S. and China, the report said.

It stated that whether the current crisis develops into a long-term economic depression will depend on when the pandemic comes to an end, as well as the extent to which major economies are afflicted, and the government's ability to respond to the situation swiftly and effectively.