South Korea's Central Bank Says Covid-19 Rise Won't Derail Economic Recovery

By Eun-Young Jeong

SEOUL--A jump in Covid-19 cases won't knock South Korea's economic recovery off track, the country's central bank said.

The Bank of Korea on Thursday forecast the economy will contract 1.1% this year, an improvement on its earlier expectation for a 1.3% drop. The brighter outlook came as the country recorded its highest number of daily coronavirus cases since March 1, when it was suffering the worst outbreak in the world outside China. The rise in infections was factored in, the bank said.

The bank said it expects the recovery to continue into the end of the year as strong overseas demand for South Korea's tech goods and increasing industrial investment continue to pull up the economy.

Also Thursday, the central bank unanimously decided to keep its policy rate unchanged at a record-low 0.5%.

"For the time being, the resurgence of Covid-19 cases into the winter and the elevated social-distancing measures are going to have a negative impact on the economy in the short run, especially in consumption," said Lee Ju-yeol, the Bank of Korea's governor. "But the economic impact will be smaller than from the beginning of this year."

The latest forecast is a hopeful sign for the U.S. and parts of Europe where the economic outlook has been clouded by a sharp increase in cases. In the U.S., consumer confidence, a forward-looking indicator, came in below expectations this month. In Europe, the huge economic rebound in the third quarter has been overshadowed by fresh lockdowns.

South Korea, a country of more than 51 million people, reported 583 new Covid-19 cases on Thursday. Though that is a low rate compared with many parts of the world, it was the fifth-highest daily count for the Asian country, widely lauded for curbing the disease through aggressive contact tracing and testing.

Economists say they don't expect the latest surge in infections to derail the country's economy, given its previous success in containing outbreaks. Consumer and business sentiment surveys released by the central bank earlier this week, which were conducted as case numbers rose this month, showed a pickup from October.

"Presuming that the authorities get the third wave under control as they have done twice already now, consumer spending has a fair bit to rise which should be a positive year-on-year growth next year," said Alex Holmes, Asia economist at Capital Economics.

Hope that a vaccine will be widely available next year is also mitigating concerns that fresh surges of infections in the West could weigh on demand for South Korean goods. So far, that hasn't happened. Exports for the first 20 days of November--trade data is released three times a month--was up 11% from year earlier.

South Korea isn't entirely out of the woods yet and failures to suppress the virus at home or abroad could always change the projections.

For now, though, the central bank says it remains optimistic. "With the low point in the second quarter, the worst situation is behind us," said Gov. Lee.

Write to Eun-Young Jeong at [e-mail]

(END) Dow Jones Newswires

11-26-20 0713ET