As the global economy marks a sharp decline amid the persisting COVID-19 pandemic, South Korea will see its economy expand 0.2 percent this year before rebounding to 3.9 percent growth level next year, according to a state-affiliated think tank.

But this modest figure, which is higher than the outlook suggested by other international institutions and private think tanks, is anticipated to face challenges down the road due to global economic uncertainties.

“Our economy will grow 0.2 percent (on-year) in 2020 amid drastic contraction of private consumption and exports, and recover in 2021 to reach 3.9 percent growth,” Korea Development Institute, affiliated with the Ministry of Economy and Finance, said in its half-year economic outlook report.

KDI anticipated that inflation will remain in the mid-zero percent range throughout the year due to sluggish economy and low oil prices, before climbing slightly in 2021.

The country will maintain the employment level as the government’s fiscal spending partly offset the massive job losses in the service sector and will add some 200,000 new jobs in 2021, it added.

KDI’s outlook is in sharp contrast to private institutions and international organizations.

The Korea Economic Research Institute suggested last month that the economy is likely to contract 2.3 percent in 2020 from a year earlier, marking the first negative growth since 1998 in the wake of the Asian financial crisis.

Global investment banks and credit ratings agencies also forecast a negative growth for Asia’s fourth-largest economy this year -- with Morgan Stanley suggesting minus 1 percent, Fitch coming up with minus 0.2 percent, and Moody’s with minus 0.5 percent.

Asian Development Bank was one of the few to predict a positive growth forecast for Korea -- 1.3 percent on-year, which was down 1 percent from the previously suggested 2.3 percent.

“(Our latest forecast) was built on the premise that the global economy will dip steeply during the first half of the year and then recover gradually from the second half,” the KDI report said.

It also assumes that the benchmark Dubai crude prices will be an average of around $35 per barrel this year and $40 per barrel next year, while the Korean won value will depreciate more or less 4 percent this year and remain steady next year.

The challenge, however, is that these perspectives on the global economy are continuously subject to change due to the persisting epidemic crisis.

In April, in light of the continued spread of the new coronavirus, the International Monetary Fund suggested that the global economy this year will contract 3 percent from a year earlier -- down 6.3 percent from the earlier 3.6 percent -- and rebound to a 5.8 percent growth level in 2021.

But volatility has increased as the IMF has recently shown signals that it may further lower its figures.

In late April, Managing Director Kristalina Georgieva expressed mounting concerns on the global economic recovery pace, implying that the organization may have to revise the growth rate down from the 3 percent contraction for this year and 5.8 percent for next year.

By Bae Hyun-jung (tellme@heraldcorp.com)