Korea will enter recession, contract 0.6 percent in 2020, S&P forecasts

S&P Global Ratings is calling a recession in Korea and predicting the first full-year GDP decline since the Asian financial crisis.

The international ratings company is forecasting a 0.6 percent economic contraction in 2020.

This is just the latest in a series of rapid fire adjustments by S&P as the coronavirus takes its toll on Korea and the world.

S&P lowered Korea’s outlook from 2.1 percent to 1.6 percent in February. The outlook again was revised in early March to 1.1 percent.

In its latest report, S&P said its changes are consistent with its earlier report that said a global recession is here. On March 17, the rating company stated that spread of the coronavirus has accelerated.

“And its economic effect has worsened sharply,” the report stated, adding that initial figures from China in the first two months of this year were much worse than feared.

“The spread of the virus, which the World Health Organization declared to be a pandemic on March 11, appears to be stabilizing in much of Asia,” the report said. “However, the increasing restrictions on person-to-person contact in Europe and the United States have sent markets reeling as risk aversion rises and views on economic activity, earnings and credit quality deteriorate sharply.”

S&P is anticipating economic contraction in other economies in Asia. It is forecasting a 1.7 percent fall in Hong Kong, 0.8 percent in Singapore and 1.2 percent in Japan.

China, Asia’s largest economy, is expected to grow 2.9 percent, far below the 6.1 percent growth last year.

The rating company estimated that the Asia-Pacific region will lose $620 billion as a result of the coronavirus pandemic.

“This loss will be distributed across sovereign, bank, corporate and household balance sheets,” it stated.

S&P isn’t the only institution that thinks Korea will experience a decline in growth this year.

London’s Capital Economics last week projected Korea’s economy to contract 1 percent, a sharp turnaround from the 2 percent growth projected in February.

Korea’s government is taking notice.

On Friday, Finance Minister Hong Nam-ki said the economy is likely to contract in the first quarter.

“Although it is inappropriate to say as a policymaker, it’s hard to exclude the possibility if you consider the impact on consumption, investment and exports both at home and abroad following Covid-19,” Hong said.

Earlier this month, he dismissed the possibility of a flat growth.

The Korean government has targeted the growth this year at 2.4 percent.

S&P projects the Korean economy will likely recover next year, growing at 5 percent.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]