(ATTN: ADDS remarks from BOK chief in paras 7-8, 13-14)
By Byun Duk-keun
SEOUL, July 16 (Yonhap) -- The Bank of Korea (BOK) on Thursday said the Korean economy is expected to shrink more sharply than earlier estimated this year due to a slower-than-expected recovery in investment and continued loss of jobs.
The revised outlook came less than two months after the bank estimated Asia's fourth-largest economy to contract 0.2 percent from a year earlier in 2020, marking a sharp downward revision from a 2.1 percent on-year expansion forecast in February.
"Economic growth in Korea has remained sluggish. Although consumption has rebounded with the relaxation of some pandemic-related restrictions on economic activity and the government's stimulus package, exports have continued to decline," the BOK said in a statement on the outcome of its latest rate-setting meeting.
The BOK on Thursday voted to keep the policy rate frozen at 0.5 percent.
"While the recovery in facilities investment has been subdued, the correction in construction investment has continued. Labor market conditions have remained weak, with the number of persons employed continuing to decline sharply," the statement said.
"Accordingly, GDP growth this year is likely to be lower than the May forecast of minus 0.2 percent," it added.
BOK Gov. Lee Ju-yeol later noted the gloomier outlook for the local economy came despite the recently approved third supplementary budget, worth over 35 trillion won (US$29 billion), which he said is expected to boost growth by up to 0.2 percentage point.
"Our economic growth may further shrink due to a delay in the recovery of exports that is closely linked to global economic conditions," he told a press briefing.
Negative growth, if realized, would mark the first of its kind for Asia's fourth-largest economy since 1998 when the country reeled from the aftermath of the 1997 Asian financial crisis.
It will also mark only the third of its kind in the country's modern history.
Still, further downward revision apparently comes as a shock to only a few.
The BOK earlier estimated the local economy to contract by as much as 1.8 percent this year, depending on the course of the COVID-19 pandemic.
"Global economic uncertainties have again increased due to the recent resurgence of COVID-19 cases," Lee said.
"In the end, it wouldn't be an overstatement to say the path of the global economy depends entirely on the future course of the COVID-19 pandemic," he added.
The global tally of COVID-19 infections has topped 13 million, more than double from around 5.8 million tallied on May 28 when the BOK published its latest growth outlook.
South Korea's exports have been on a steady decline for four consecutive months since March, while the country also lost more jobs than it added over the same period.
"As economic growth is expected to be sluggish and inflationary pressures on the demand-side are forecast to remain weak due to the COVID-19 pandemic, the Board will maintain its accommodative monetary policy stance," the BOK said.
The central bank is set to offer its new, official growth outlook next month.
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