JP Morgan and Fitch Predict South Korea's Growth Rate to Remain in the 0% Range This Year... Another Major Downgrade

Reflecting the Impact of the COVID-19 Pandemic
South Korea's Growth Rate for This Year Revised Down from 1% Range to 0.8%

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] Due to the impact of the novel coronavirus infection (COVID-19), forecasts have emerged one after another that South Korea's gross domestic product (GDP) growth rate this year will remain in the 0% range.

Global investment bank (IB) JP Morgan announced on the 20th that it has lowered South Korea's economic growth forecast for this year to 0.8%, reflecting concerns about a global economic recession caused by the COVID-19 pandemic.

JP Morgan had previously lowered its growth forecast from 2.3% before the spread of COVID-19 to 2.2% last month and 1.9% earlier this month. The decision to lower South Korea's growth forecast to the 0% range on this day was due to a significant downgrade of the global economic growth forecast to -1.1%.

International credit rating agency Fitch also announced that it is lowering South Korea's growth forecast for this year from the previous 2.2% to 0.8%. In its global economic outlook report released on the same day, Fitch stated, "We expect South Korea's GDP growth rate this year to be 0.8%, which is 1.4 percentage points lower than our previous forecast."

Fitch predicted, "The South Korean economy will enter a technical recession in the first half of the year and then rebound in the second half." Quarterly, it forecast negative growth of -0.6% and -0.9% quarter-on-quarter in the first and second quarters, respectively, followed by growth of 0.9% and 0.8% in the third and fourth quarters.

In the report, Fitch explained, "South Korea is exposed to foreign trade and is part of international and regional value chains, so it is being negatively affected by COVID-19." It pointed out, "The scale of intermediate goods input from China accounts for 6% of South Korea's GDP, making it the country with the largest exposure among those covered in our global economic outlook." Fitch also added, "Some South Korean manufacturers had to halt or significantly reduce production due to shortages of intermediate goods from China."

The report also explained that reduced domestic consumption in South Korea had an impact. It pointed out, "Due to the spread of the virus, individuals are avoiding public places such as restaurants and movie theaters, which is expected to have a serious impact on GDP." Furthermore, it diagnosed that if growth rates in other countries decline, it will deal a significant blow to South Korean exports.

Regarding the South Korean government's market stabilization policies and the Bank of Korea's interest rate cuts, the report evaluated them as "important stimulus measures that help boost the economy."

Earlier, Japanese Nomura Securities also forecast on the 6th that South Korea's GDP growth rate would range from 0.2% to 1.4%. If the COVID-19 outbreak progresses favorably, the growth rate is expected to be 1.4%; in a worse scenario, 0.9%; and in the most severe case, 0.2%. This means that under the worst-case scenario, the growth rate could fall into the 0% range.

Morgan Stanley also analyzed on the 11th that depending on the development of the COVID-19 situation, South Korea's GDP growth rate could fall by at least 0.8 percentage points and up to 1.7 percentage points from previous forecasts. Considering the previous forecast of 2.1%, this means South Korea's growth rate this year is expected to be between 0.4% and 1.3%.

South Korea's GDP growth rate has fallen below 2% only three times: in 2009 (0.8%) right after the financial crisis, in 1998 (-5.5%) during the foreign exchange crisis, and in 1980 (-1.7%) during the second oil shock.

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