Morgan Stanley: "Korea's 1Q Growth Rate May Drop by 0.8~1.7%p Due to Novel Coronavirus"

[Asia Economy Reporter Hwang Yoon-joo] Due to the impact of the novel coronavirus infection (COVID-19), there is an analysis that South Korea's first-quarter Gross Domestic Product (GDP) growth rate could drop by as much as 0.8 to 1.7 percentage points.

Global investment bank (IB) Morgan Stanley stated in a report on the 11th, "At a time when the global economy, which had been weighed down by trade disputes, was showing signs of recovery, it now faces another disruption caused by the outbreak of the novel coronavirus," adding, "The biggest concern is the collapse of supply chains."

Morgan Stanley explained that "production facilities in China have been halted due to the virus, and as a result, supply chains in other parts of the world are also facing crises," and outlined three possible scenarios going forward.

Morgan Stanley said, "If production in China quickly resumes around the 10th of this month, the impact of this situation on global GDP growth in the first quarter of this year will be around 0.15 to 0.30 percentage points," adding, "In this case, South Korea's GDP growth rate will fall by 0.8 to 1.1 percentage points, and the Bank of Korea is expected to cut the base interest rate by 0.25 percentage points at the Monetary Policy Committee meeting in February."

It continued, "In the second scenario, if production in China gradually resumes, migrant workers may face difficulties returning to their workplaces, and it may take longer for transportation and logistics to normalize."

It further predicted, "In this case, the global GDP growth rate in the first quarter could fall by 0.35 to 0.50 percentage points, and South Korea's GDP growth rate could decline by 1.1 to 1.4 percentage points," adding, "The Bank of Korea is also expected to lower the base interest rate by 0.25 percentage points at the February Monetary Policy Committee meeting."

Lastly, it expressed concern that "if the novel coronavirus peaks in April and the production halt in China is prolonged, the impact on the global supply chain will be even greater."

Morgan Stanley predicted, "At that time, the global GDP growth rate in the first quarter will fall by 0.50 to 0.75 percentage points, South Korea's GDP growth rate will drop by 1.4 to 1.7 percentage points, and the Bank of Korea will cut the base interest rate by 0.50 percentage points."

However, Morgan Stanley maintained the view that "the global economic recovery trend has not completely stopped but is only somewhat delayed," adding, "We will continue to closely monitor whether production activities in China resume and announcements from local governments and companies."

This content was produced with the assistance of AI translation services.