Korea's economy to contract 1% in 2020, OECD predicts

Samsung Electronics' NAND flash production factory under construction at Pyeongtaek, Gyeonggi, in May. [YONHAP]

The Organisation for Economic Cooperation and Development (OECD) has revised up its forecast for Korea's 2020 economic growth, or down, depending on which number is used.

The international organization projected a decline of 1.0 percent in its September OECD Economic Outlook, which is slightly better than the minus 1.2 percent figure issued in June. But it is worse than another OECD forecast for Korea issued in August, when the organization predicted a 0.8 percent decline in 2020.

In the September report, Korea was the best-performing OECD country. It is the second best-performing in the G20, as China is forecast to achieve 1.8 percent growth in 2020.

The drop in the OECD outlook for Korea in 2020 between August and September was the result of the resurgence of Covid-19 case numbers last month that led to the government implementing stricter social distancing measures, which included limited access to coffee shops and restaurants and shutting indoor gyms and internet cafes.

The social distancing rules were eased this week as the number of daily confirmed cases dropped from a recent peak of 400 to about 100.

The Asian Development Bank (ADB) forecast the Korean economy to contract 1.0 percent in 2020, and that's good news considering that the estimate is unchanged from June.

State-financed Korea Development Institute (KDI) is looking for a 1.1 percent decline, down from an earlier projection of minus 0.2 percent. The Bank of Korea (BOK) earlier changed its outlook from a 0.2 percent drop to a 1.3 percent decline.

Korea’s economy is expected to recover next year, with the OECD forecasting 3.1 percent growth, unchanged from the June forecast. Turkey and the United States are also expected to rebound to precrisis levels next year.

The OECD report stated that the output in most economies at the end of next year will likely remain below 2019 levels.

ADB expects 3.3 percent growth for Korea in 2021. That’s a 0.2 percentage-point drop from June’s projection of 3.5 percent.

The OECD report cautioned about quick cutbacks in government spending next year.

“The aim must be to avoid premature budgetary tightening,” the reported noted. “Premature withdrawal of fiscal support in 2021 would stifle growth, as occurred in the aftermath of the global financial crisis in many countries.”

The global economic growth forecast was raised from a 6 percent decline in June to a 4.5 percent drop in September. The U.S. economy is expected to contract 3.8 percent, an improvement from June’s forecast of a 7.3 percent decline, while Europe's GDP is expected to decline 7.9 percent from the previous 9.1 percent projection.

While the forecasts for most countries were revised upward, those for India and Mexico were revised downward.

India’s growth is expected to plunge 10.2 percent, far sharper than the 3.7 percent decline projected in June. Mexico's economy, which was projected to contract 7.5 percent this year in June, is expected to suffer a drop of 10.2 percent.

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