The Bank of Korea (BOK) expected the domestic economy to mark a negative growth of 0.2% this year. It is the first time since the 2008 global financial crisis when the growth rate was expected to hit minus 1.6 percent in 2009.
The Korean economy recorded negative real GDP growths only in 1980 (minus 1.6%) and in 1998 (minus 5.1%).
The central bank's sharp cut in its economic growth forecast reflects its view that it is difficult for the domestic economy to recover within the year due to the COVID-19 pandemic.
In its economic outlook report released on May 28, the central bank sharply lowered its growth forecast for this year by 2.3 percentage points from 2.1 percent to -0.2 percent.
The growth rate for next year is forecast to be 3.1 percent. The figure is 0.7 percentage point higher than the previous forecast of 2.4 percent.
Earlier in February, the BOK lowered its forecast growth rate once this year from 2.3 percent to 2.1 percent, but later lowered it by 2.3 percentage points at once to reflect the fact that various indicators later confirmed that the economic impact of the COVID-19 crisis was more serious.
The first-quarter growth rate was -1.4 percent compared to the previous quarter. The figure is the lowest in 11 years and three months since the fourth quarter of 2008 (-3.3 percent) during the global financial crisis.
In the second quarter, however, some indicators showed gloomy growth prospects for this year. Exports fell 24.3 percent in April from a year earlier, followed by a 20.3 percent drop in May 1 to 20.
The economic situation in the U.S. and China, the two pillars of the global economy that have an absolute impact on Korea's exports and growth rate, is also worse than expected.
According to a survey of 64 economists conducted by the Wall Street Journal (WSJ) this month, the expected growth rate of the U.S. in the second quarter was -32%.
China failed to present its economic growth target for this year at the third annual meeting of the National People's Congress on May 22.
BOK Gov. Lee Ju-yeol said in a press conference, "We believe that a more optimistic scenario will allow the economy to post a slight plus growth. In a pessimistic scenario, however, the negative range could be larger than -0.2 percent."
Meanwhile, the central bank's Monetary Policy Committee cut its key interest rate by 25bp (1bp=0.01%p) to 0.50 percent.
