(Bloomberg) --
Economists have slashed South Korea's growth forecasts as a slowdown in China caused by the coronavirus outbreak threatens to hit exports of high-tech goods.
Citigroup Inc cut its 2020 estimate for gross domestic product growth by 0.3 percentage point on Tuesday, while Goldman Sachs Group Inc. lowered forecasts by 0.1 percentage point last week, citing the coronavirus as the impetus.
South Korea’s economy expanded 2% last year, the slowest pace since the global financial crisis, as exports sank amid U.S.-China trade tensions. The Bank of Korea said in November that growth would rebound to 2.3% this year as high-tech devices such as chips lead a recovery in exports.
“The Bank of Korea will probably revise down its growth forecast” when it meets later this month for an interest rate decision, said Cho Yong-gu, an analyst at Shinyong Securities who predicts the growth rate to be cut by at least 15 basis point due to the coronavirus.
The coronavirus outbreak has so far killed more than 1,000 people across China and infected hundreds of others abroad, including more than 25 in South Korea.
Citigroup sees South Korea as the third most-vulnerable to a consumption shock in China after Hong Kong and Singapore. South Korea exports twice as many high-tech goods to China than to the U.S., with chips accounting for half of the , according to the Korea International Trade Association.
“History shows when a terrorist event or a disease hits the global economy, stimulus measures always followed,” said Kim Il-Goo, strategist at Hanwha Investment & Securities.
South Korea responded with stimulus when a different coronavirus hit the nation in 2015 and the BOK lowered the interest rate to shore up the economy. Economists are now split on whether the latest outbreak would elicit similar steps, but agree the chance is growing.
©2020 Bloomberg L.P.
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