The Bank of Korea (BoK) estimated on Thursday that this year South Korea's GDP will contract by 0.2 per cent due to the coronavirus pandemic, and decided to cut interest rates by 25 basis points to an all-time low of 0.5 per cent.
The recent forecast comes in stark contrast to its predictions in February when the virus had not yet spread globally, reports Efe news.
The bank had then estimated that Asia's fourth-largest economy would grow by 2.1 per cent in 2020.
"There is considerable uncertainty surrounding the economic outlook as it depends on how the "COVID-19 situation develops," the bank said in a statement after a board meeting.
Governor Lee Ju-yeol told the media here on Thursday that the current estimate was based on the belief that the pandemic would peak globally in the second quarter and that there would be no second major wave of infections in the country, Yonhap news agency reported.
Shipments from South Korea fell by almost 25 per cent year-on-year in April when it recorded its first trade deficit in eight years.
In a unanimous decision by the governing board, the BoK cut the interest rates to an all-time low of 0.5 per cent to ease the current situation.
However, the bank statement also underlined that global trade growth was projected to gradually improve from the second half of the year.
"Trade in services has contracted sharply, while trade in goods is also declining. However, global trade is expected to recover gradually as the global economy recovers," it said.
The recent central bank rate cut and revision in the forecast have been along expected lines.
Most experts believe that the South Korean economy will experience its worst year since 1998 when the GDP contracted by 5.1 per cent due to the effects of a financial crisis in Asian markets.
( With inputs from IANS )