IMF lowers Korea's 2020 growth outlook to -1.2%

World expected to see worst recession since 1930s depression

By Lee Kyung-min

The global economy will contract 3 percent in 2020 due to COVID-19, amid impending concerns that the world could experience the worst recession since the Great Depression in the 1930s, the International Monetary Fund (IMF) said in its outlook report Tuesday.

The murkier outlook is down 6.3 percentage points from the previous projection made in January.

The IMF forecast the Korean economy would also shrink 1.2 percent in 2020, revised down 3.4 percentage points from a 2.2 percent expansion in January.

“The forecast embodies Korea's comprehensive approach in containing the COVID-19 outbreak and quick economic policy response, which have helped mitigate the negative impact on domestic activity,” it said in the report.

“However, given Korea's high degree of openness, the growth prospects are constrained by very weak external demand, as reflected in sharply lower growth projections for Korea's main trading partners,” it added.

The IMF said the key considerations for the downward revision included the nature of the shock, saying the COVID-19 pandemic differs markedly from past downturn triggers.

According to the IMF, labor supply was reduced while sectors relying on social interactions ― travel, tourism and entertainment ― were hit hard by quarantines, regional lockdowns, and social distancing, the essential measures needed to contain the virus.

Workplace closures disrupted supply chains and led to lower productivity. Layoffs, income declines, contagion fears and heightened uncertainty make people spend less, triggering further business closures and job losses.

“These domestic disruptions spill over to trading partners through trade and global value chain linkages, adding to the overall macroeconomic effects,” it said.

The Paris-based organization said the countries experiencing severe epidemics are assumed to lose about 8 percent of their working days in 2020 over the duration of containment efforts and subsequent gradual loosening of restrictions.

It added that the widespread disruptions are assumed to be concentrated mostly in the second quarter of 2020 for almost all countries except China, with a gradual recovery thereafter as it takes some time for production to ramp up after a shock.

But, it said the global economy is expected to rebound 5.8 percent in 2021, well above previous trends, reflecting the normalization of economic activity from very low levels.

This is based on its baseline scenario, according to which the pandemic is assumed to fade in the second half of 2020, allowing for a gradual lifting of containment measures.

Yet, the international organization stressed the rebound in 2021 depends critically on the pandemic fading in the second half of 2020, adding that containment efforts would be gradually scaled back and consumer and investor confidence restored.

“Significant economic policy actions have already been taken across the world, focused on accommodating public health care requirements, while limiting the amplification to economic activity and the financial system. The projected recovery assumes that these policy actions are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains,” it said.