The South Korean economy is expected to contract 2.3 percent on-year in 2020, hit by the fallout of the new coronavirus outbreak, a local private think tank said Sunday.

Asia's fourth-largest economy is forecast to have fallen 1.7 percent in the first half and to contract 2.9 percent in the second half, according to the Korea Economic Research Institute (KERI).

The yearly projection is the same as its earlier estimate made in March.

It would mark the South Korean economy's first contraction since the 5.1 percent decline recorded in 1998 in the wake of a foreign exchange crisis.

KERI's growth outlook is far lower than a 0.1 percent growth forecast made by the Bank of Korea in June.

"Despite all-out efforts to overcome the impact from the COVID-19 pandemic, it is hard for the Korean economy to avoid a sharp slowdown as economic fundamentals remain weak and the recovery of the global economy slows," said KERI under the Federation of Korean Industries, the nation's big business lobby.

Private spending is expected to decline 3.7 percent on-year in 2020 as consumer sentiment will remain subdued amid tepid corporate earnings.

Exports, one of the main pillars for economic growth, are likely to shrink 2.2 percent this year, amid the global economic slowdown, it added.

Facility investment will likely fall 18.7 percent, while construction investment is expected to decline 13.5 percent. (Yonhap)