BOK says this crisis is worse than 2008

Export cargo waiting to be shipped out of the port in Busan on June 1. [YONHAP]

The central bank considers the coronavirus crisis worse than the global economic meltdown a decade ago, and warns recovery will be slow.

The Bank of Korea Thursday released a report projecting that the world economy will see an improvement in the second half of this year as the spread of the virus slows.

But it said it was difficult to project the speed of a recovery as the global economy will remain volatile until a vaccine is developed.

One of the biggest concerns it raised was the effect of lockdowns around the world on the global supply chain.

It predicted global trade to contract significantly.

The biggest impact on Korean exports will come from China and five Asean countries: the Philippines, Indonesia, Malaysia, Singapore and Thailand. Korea's trade with those countries has grown significantly since the global financial meltdown a decade ago.

The central bank said that while global demand on non-human-to-human contact technology will benefit the Korean semiconductor industry, purchases of consumer goods such as mobile phones and consumer electronics, which take up a huge portion of Korea's semiconductor exports, will shrink.

It said it didn't expect an improvement for the semiconductor market until the second half of the year.

Falling international crude prices and rising tensions between China and the United States were also identified as negative factors.

Although this was not the first time the central bank noted that the current crisis is worse than the one a decade ago, its view on the semiconductor industry has changed.

Last month, the BOK said the industry’s recovery was slower than it initially expected due to slow demand in the global market, but projected that mid- to long-term growth would be favorable.

Semiconductors account for 23 percent of Korea’s total exports. In May, semiconductor exports rose 7.1 percent, the first positive growth in 18 months.

Despite the positive growth last month, some analysts cautioned that the increase was largely due to major IT companies like Google beefing up their servers as more people were working or studying from home due to the coronavirus.

It predicted orders to shrink in the second half.

“Both the suppliers and customers have been pushing back on signing contracts,” said Kim Sun-woo, a Meritz Securities analyst. “If mobile demand is revived in the second half, time will be on the side of semiconductor manufacturers.”

The central bank last month lowered the key interest rate to a record 0.5 percent after shaving off 0.25 percentage points. It was the second cut this year since it was lowered to 0.75 percent in March.

It projected negative growth of 0.2 percent for this year, a significant readjustment from the 2.3 percent growth it predicted in February.

The Organisation for Economic Cooperation and Development (OECD) on Wednesday announced its economic outlook of negative 6 percent growth for the global economy this year — the worst since World War II.

Three months ago it projected 2.5 percent positive growth for this year.

The OECD said the growth could be negative 7.6 percent if there’s a second wave of the coronavirus.

It predicted Korea’s economy will shrink 1.2 percent, down from March’s forecast of 2 percent positive growth.

If there’s a second wave, it said, Korea’s economy could shrink 2.5 percent.

The Korean government is targeting 0.1 percent growth for this year.

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