Nomura Securities Japan: "This Year South Korea's Growth Rate Could Be -12.2% in the Worst Case"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] As the COVID-19 pandemic prolongs, an analysis has emerged suggesting that South Korea's economic growth rate this year could plummet by as much as 12.2% compared to the same period last year in the worst-case scenario.

On the 30th, the Japan-based Nomura Securities stated, "South Korea's GDP growth rate this year is expected to range between -5.5% and -12.2%." Previously, Nomura Securities had projected South Korea's growth rate to be between 0.2% and 1.4%.

In this report, Nomura Securities presented three growth rate forecast scenarios based on the progression of COVID-19: 'base', 'good', and 'bad'. Nomura assumed the 'base scenario' where social distancing measures in the U.S. and Europe are strictly enforced until the end of April and then eased, projecting South Korea's growth rate at -6.7% under this scenario.

This level is more severe than during the 1998 International Monetary Fund (IMF) foreign exchange crisis (-5.5%). Nomura Securities explained, "While South Korean exports are expected to gradually improve from the second quarter, the possibility of a second wave of infections in major countries this winter was also considered."

Additionally, under the 'base scenario', "the Bank of Korea is expected to cut interest rates by 25 basis points (1bp = 0.01 percentage points) at its May meeting," and "since rates can quickly reach the lower bound, the Bank of Korea is likely to announce unconventional monetary policy measures."

Nomura Securities assumed a 'bad scenario' where COVID-19 infections worldwide increase exponentially until April, projecting South Korea's growth rate this year at -12.2%. Regarding this case, Nomura added, "Global financial markets will face a complete credit crunch, leading to severe economic damage and unemployment, resulting in a prolonged recession."

They also considered a 'good scenario' where social distancing measures are enforced only until mid-April, estimating South Korea's GDP growth rate this year at -5.5% in this case.

Meanwhile, Nomura Securities projected the U.S. growth rate this year at -9.0% under the base scenario, -5.9% under the good scenario, and -11.3% under the bad scenario. China's growth rate is estimated at 1.0% for the base scenario, 1.5% for the good scenario, and 0.0% for the bad scenario.