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By Lee Min-hyung
The economy could slip into an L-shaped slump in the first half of 2020 before rebounding slowly from the coronavirus outbreak, experts said Wednesday.
It is widely assumed that if the epidemic lasts any longer it will stymie China's economic growth, dealing a heavy blow to the Korean economy. China is Korea's largest trading partner.
Growing pessimism, driven by the spread of the coronavirus, continues to rattle global and local economic institutions, causing them to lower their growth outlooks for China and Korea.
Some overseas think tanks have predicted that China's first-quarter economic growth will nosedive below the 3-percent mark in the face of the rising death toll from the virus and weakening consumer confidence.
Oxford Economics, a London-based economic research institute, lowered Korea's 2020 GDP growth outlook to 2 percent from 2.2 percent in a recent report. It said the local economy would see a continued slowdown throughout the year.
According to the report, the country's exports will remain weak, as the outbreak of the coronavirus is having a negative impact on global trade.
In its latest report, Citibank forecast that growth for 2020 here could fall to 2 percent from its previous prediction of 2.3 percent if the spread of the coronavirus escalates into a pandemic that encircles the globe.
The economy recorded a ten-year low of 2 percent growth in 2019 in the wake of the year-long trade dispute between the United States and China.
Sung Tae-yoon, an economics professor at Yonsei University, remained pessimistic over the likelihood of a rebound toward the end of the year.
"Chances appear very slim for the economy to make a meaningful rebound in the latter half of the year, even if some economic indices improve due to a base effect from those in 2019," he said.
"My view is that the coronavirus issue has not been accurately reflected in the local economy, and it still remains to be seen what specific impact the virus will have," he said.
The 2015 MERS outbreak in Korea drove economic growth down by 0.3 percentage points, according to the Bank of Korea.
One thing that looks clear is that the economy will remain sluggish with few signs of a big rebound in 2020, according to Sung.
Korea Capital Market Institute economist Kang Hyun-ju predicted that the economy will perform poorly in the first half of the year in the aftermath of the contagious disease, but get back on track for a slow recovery during the second half.
"The economic impact of the virus will not be serious enough to result in a big fall in overall growth at a time when the economy is already suffering from a long-term downturn, while the potential for a rebound remains low," he said.
The coronavirus is different from the SARS outbreak back in 2003 when the Korean and Chinese economy reported high growth, according to the analyst.
"The SARS-related economic impact looked to be huge at that time of rapid economic growth. But the coronavirus will only pose a limited impact on the economy, as the country has already fallen into in a low growth trap," he said.
"The economy will be able to recover from the third quarter of the year under the assumption that the virus outbreak is resolved earlier than expected," he added.
Antonio Fatas, an economics professor at INSEAD, said central banks and government authorities across the globe should not remain too pessimistic over the spread of the virus.
"I do not think one should be too pessimistic yet, but it is possible that in a few weeks the virus will have spread across several continents," he said in an email.
"Governments and central banks need to be aggressive, using their policies to limit the impact of these slowdowns," he said. "But one cannot perform miracles. If trade is disrupted, if travel is disrupted, there isn't much central banks can do."
