SEOUL (Reuters) – South Korea will take the smallest hit to growth of any advanced economy this year after it was able to limit the spread of the coronavirus without imposing severe lockdowns, the OECD said on Tuesday.
South Korea’s gross domestic product will fall just 0.8% in 2020, a slight improvement from the 1.2% downturn in GDP forecast in June, the Organization for Economic Co-operation and Development (OECD) said in a report on Asia’s fourth biggest economy.
That is considerably milder than the OECD average of a 7.5% contraction for this year, and far outperforms the 7.3% and 6.0% shrinkage seen for major economies the United States and Japan, respectively.
“South Korea is seen as an example in the OECD, not only with its (virus) containment strategies but also with its focus on investing in future growth engines for the economy,” said Ko Hyoung-kwon, South Korea’s ambassador to the OECD.
Private consumption is expected to slowly pick up as the government eases its guidelines on social distancing, although a protracted global recession is set to drag down exports and investment, the OECD said in its report.
It recommended the Bank of Korea to consider further monetary policy easing if low inflation and sluggish activity persist, and also urged the bank to look at more unconventional policies given it has little space left for more rate cuts.
The BOK has slashed its policy interest rate by 75 basis points since March to 0.5% <KROCRT=ECI>, working in tandem with a 277 trillion won ($231 billion) stimulus package rolled out by the government to fight the economic fallout from the pandemic.
South Korea emerged as an early success story in containing the virus among its 51 million people after a severe outbreak in Daegu in March, basing its approach on vigorous testing and tracing strategies.
It is still battling small but persistent clusters of infections, having reported 14,660 cases and 305 deaths.
(Reporting by Cynthia Kim; editing by Richard Pullin)