The Korea Development Institute (KDI), a state-run think tank, has sharply lowered its forecast for Korea's economic growth this year.
In its "Economic Outlook for the First Half of 2020" released on May 20, the KDI predicted that the Korean economy will grow 3.9 percent next year, showing a good recovery after only 0.2 percent growth this year.
The 0.2 percent growth forecast for this year is down 2.1 percentage points from 2.3 percent in the second half of 2019 released by the KDI in November last year.
The KDI pointed out, "Recently, the Korean economy has been rapidly shrinking due to the influence of COVID-19 with private consumption and exports at the center."
However, the 02. percent growth is optimistic compared to the recent growth rate of IMF (-1.2%), Standard & Poor's (S&P, -1.5%), and Moody's (-0.5%).
In detail, it predicted a "U-shaped" curve in which the growth rate in the first half of the year will reverse to -0.2 percent, then recover to 0.5 percent in the second half and grow 3.9 percent annually next year.
"Even if the economy will recover a significant growth next year, the average annual growth rate over the next two years will be in the early stage of the 2 percent range, far below the existing potential growth rate," the KDI said.
As the spread of COVID-19 is uncertain, KDI analyzed Korea's growth path in three scenarios this year. The "standard scenario," which predicted 0.2 percent growth this year, presupposes that the spread of the virus will slow down in the first half of the year at home and the second half at overseas, and that economic activities abroad will recover smoothly in the second half.
Chung Kyu-chul, head of the KDI's economic outlook office, explained, "The forecast of 0.2 percent growth means that there is a high possibility of reverse growth as much as the possibility of positive growth."
Meanwhile, Cho Duk-sang, a researcher at the KDI's economic outlook division, said, "With the spread of COVID-19, uncertainties about the growth path are also very high. In the short term, we need to focus on supporting the vulnerable, stabilizing the macroeconomics, and protecting the economic system, but we need to prevent temporary policies to overcome the crisis from leading to damages in production and resource allocation."