Private consumption to recover slower than expected on virus fallout: BOK

By Kim Soo-yeon

SEOUL, Sept. 10 (Yonhap) -- The Bank of Korea (BOK) said Thursday that private consumption is likely to recover at a slower-than-expected pace this year due to the fallout of a flare-up in coronavirus cases.

The central bank also warned that the resurgence in COVID-19 cases and subsequent impact on Asia's fourth-largest economy could increase volatility and raise credit risks of smaller firms.

"If the virus outbreak is protracted, the tendency to avoid face-to-face services and restrictions in foreign travel are expected to serve as factors that could crimp the recovery of private consumption for a considerable period of time," the BOK said in a monetary policy report.

The BOK trimmed its growth outlook and froze the key interest rate at a record low in late August as uncertainties stemming from spiking virus cases heightened.

The central bank forecast a 1.3 percent contraction for Asia's fourth-largest economy in 2020, sharper than its estimate in May of a 0.2 percent retreat.

The BOK stood pat on the base rate at an all-time low of 0.5 percent for the second straight occasion last month.

The bank cut the policy rate to the current level in May after delivering an emergency rate cut of half a percentage point to 0.75 percent in March to cushion the impact of the new coronavirus outbreak.

After daily virus cases were kept at double digits for months, they have been in triple digits since Aug. 14 due to cluster infections tied to a conservative church in northern Seoul and a political rally in mid-August.

The country's daily COVID-19 cases fell under 200 for the eighth straight day Thursday. But health authorities remain alert over a potential rebound in virus cases due to continued sporadic cluster infections and seasonal factors.

The BOK report said the country's exports and domestic demand showed some improvement, but the latest uptick in virus cases raised uncertainty for the growth path.

"Contraction of offline economic activity is not likely to ease markedly until safety for health will be guaranteed with the development of vaccines and treatments," it said.

The recovery of the country's overseas shipments may also be delayed due to uncertainty in the global economy, it added.

In a revised growth outlook, the BOK forecast consumer spending to retreat 3.9 percent this year, down from its earlier projection of a 1.4 percent contraction.

Exports, which account for about 50 percent of the South Korean economy, are forecast to slide 4.5 percent this year, sharper than its previous estimate of a 2.1 percent decline.

The BOK said last month that Asia's fourth-largest economy may contract 2.2 percent this year in the worst scenario in which the flare-up in virus outbreaks continues into the winter.

"The BOK plans to keep the accommodative stance of the rate policy, as economic growth will likely remain sluggish amid the flare-up in virus cases while inflationary pressure will stay low," the report said.

sooyeon@yna.co.kr
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