South Korea on Monday sharply slashed its growth estimate for the year, but expected a strong economic rebound next year on the back of massive fiscal spending, vowing to adopt "all possible means" to help Asia's fourth-largest economy chug along amid the pandemic.

The finance ministry revised down its growth outlook to 0.1 percent from the 2.4 percent forecast late last year.

Such a sharp cut follows the outbreak of the new coronavirus that has infected more than 6 million people globally. Some 11,500 South Koreans have been infected since the country reported its first confirmed case on Jan. 20.

Finance Minister Hong Nam-ki said his ministry is not ruling out the possibility of a contraction this year given strong headwinds from the pandemic.

"Situations in the second quarter may be worse than in the first quarter, but we judge that positive growth may be attainable from the third quarter should the pandemic ease from the third quarter of the year," Hong said in a press conference.

The minister said an economic rebound of more than 3 percent is expected next year.  

The sharp cut in the ministry's growth projection is still higher than those by others.

The Bank of Korea (BOK) last week projected the country's economy will contract 0.2 percent this year, the slowest since 1998. It marks a sharp downward revision from the 2.1 percent growth forecast in February.

The ministry expects a proposed increase in its fiscal spending to help somewhat offset the economic fallout from the virus outbreak.

It has already secured over 20 trillion won in two extra budgets and is pushing for a third supplementary budget that many believe will be larger than the first two combined.

The BOK said its latest projection did not take into account the third supplementary budget.

"There clearly exist downside risks, but the government estimate is based on the consideration of various policy measures including extra budget," Deputy Minister of Economy and Finance Bang Ki-seon said. "It will do its utmost to make sure the country's economic growth will reach the 0.1 percent target this year."

The state-run Korea Development Institute (KDI) earlier noted that the first two extra budgets alone may expand the country's GDP by 0.5 percentage point this year.

The government said it has front-loaded 35.3 percent of its annual spending in the first three months of the year, and that it plans to execute 62 percent of its annual budget before the end of June.

It has also pledged a 250 trillion-won ($203.7 billion) aid package for local businesses hit by the new coronavirus.

Partly on such stimulus efforts, the government said the South Korean economy is expected to rebound by 3.6 percent next year.

Such growth, however, will not represent a complete recovery from the slump caused by COVID-19, it noted.

"The government estimated the economy to rebound to 3.6 percent growth next year. This certainly is higher than the country's growth potential. However, it must be noted that it will rebound from a low base," a ministry official said.

The BOK forecast the local economy to expand 3.1 percent on-year in 2021 under its basic case scenario.

The KDI, which estimated the country's economy will grow 0.2 percent this year, has forecast a 3.9 percent on year expansion in 2021.

The latest outlook revision came as the country's exports dropped for the third consecutive month in May due to the growing economic fallout from the pandemic that has disrupted the global supply chain.

Outbound shipments dipped 23.7 percent to hit $34.8 billion last month, compared with $45.7 billion posted a year earlier, according to the data compiled by the Ministry of Trade, Industry and Energy.

The country's exports dropped 1.4 percent on-year in March, followed by a whopping 25.1 sink in the following month.

Exports were expected to rebound from last year's 10 percent drop in annual exports, which was mostly attributable to the weak global chip prices coupled with the Sino-American trade war. (Yonhap)