The Bank of Korea (BOK) revised down its growth outlook from the estimate of a 0.2-percent fall announced in May. It would mark the first negative growth since the foreign exchange crisis roiled the economy in 1998.
If the domestic COVID-19 resurgence continues by the end of this year and the global pandemic lasts longer than expected, the real GDP could drop as low as 2.2 percent this year, the BOK forecast.
BOK Governor Lee Ju-yeol told an online press conference after the rate-setting meeting that if the social-distancing guideline is raised to the highest level, it would limit the domestic economy's recovery.
The government raised the social-distancing guideline to Level 2 earlier this month to address the recent surge in virus infections. Under the highest Level 3 guideline, it can actually have an effect of shutdowns in most of businesses.
The real GDP was forecast to expand 2.8 percent in 2021, lower than the previous outlook of 3.1 percent increase.
Outlook for headline inflation was set at 0.4 percent this year and 1.0 percent next year respectively.
The BOK said in a statement that the domestic economy's recovery would be slower than expected owing to the resurgence of the COVID-19, vowing to maintain its accommodative monetary policy.
The central bank left its target rate unchanged at an all-time low of 0.50 percent. The bank cut the rate by 25 basis points in May, after slashing it by 50 basis points in March to tackle the economic downturn from the virus spread.
Concerns resurfaced here about the resurgence of the COVID-19. In the latest tally, the country reported 441 more confirmed cases for the past 24 hours, raising the combined figure to 18,706.
It marked the highest daily caseload in 173 days since March 7, keeping a triple-digit growth for two straight weeks.
The economy was previously forecast to rebound in the second half, but the outlook dimmed as the recent infections can discourage people from outside activities such as eating-out, shopping and traveling.
The real GDP diminished 3.3 percent in the second quarter from the previous quarter, after skidding 1.3 percent in the first quarter.
Export, which takes up for about half of the export-driven economy, fell 7.0 percent in July from a year earlier, but it slowed from declines of 25.5 percent in April, 23.6 percent in May and 10.9 percent in June respectively.
Global demand partially recovered owing to the reopening of businesses in major economies following shutdowns to tackle the COVID-19 pandemic.
The country's goods export was predicted to slump 4.5 percent this year after rising 0.5 percent last year. The goods import was forecast to slide 1.8 percent in 2020.
Private consumption, another engine of the economic growth, was projected to reduce 3.9 percent in 2020.
Public call mounted for the second offer of relief grants to all households in the second half. The first offer of relief grants in May helped bolster consumer spending, leading to the enhanced consumption-related data in the second quarter.
Investment in the construction sector was forecast to fall 0.7 percent this year, but facility investment was expected to grow 2.6 percent thanks to the investment in the information technology (IT) industry.
The number of jobs was predicted to fall 130,000 this year before growing 200,000 next year.
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