South Korea central bank cuts growth outlook on virus fears

SEOUL - South Korea's central bank slashed its growth forecast on Thursday, predicting the world's 12th-largest economy will shrink more than one per cent this year as it braces for a surge of coronavirus infections.

The country had been largely returning to normal after mostly bringing its outbreak under control, but multiple cluster infections in recent days have raised fresh fears over a nationwide pandemic.

Its trade-dependent economy has been battered by the impact of the virus on the rest of the world.

The economy is now expected to shrink 1.3 per cent in 2020, the Bank of Korea said, its second downward revision in four months having lowered its outlook in May to a 0.2 per cent contraction, from an earlier forecast of 2.1 per cent growth.

"The recovery of domestic economic growth is likely to be slower than previously forecast, largely due to the domestic resurgence of COVID-19," the bank said in a statement.

"Uncertainties around the future path of GDP growth are also judged to be very high," it added.

The latest figure would represent the worst performance since 1998, when the economy shrank 5.1 per cent in the aftermath of the Asian financial crisis.

The latest projection came as South Korean authorities battle several new coronavirus clusters -- mostly linked to Protestant churches -- reporting 441 new infections on Thursday, the latest in a series of near-six-month highs.

Even so the OECD club of developed economies is predicting the South will record the best -- or least bad -- economic performance among its 37 members in 2020.

The Bank of Korea left its key interest rate unchanged at a record low of 0.5 per cent, citing economic fallout from the pandemic.