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  • Concerns over a slowdown of the Korean economy increase with a growing possibility of an economic re
    2022-09-21 hit 583

    Concerns over a slowdown of the Korean economy increase with a growing possibility of an economic recession in the U.S. and Europe

     

    The Bank of Korea released a report titled “The risk assessment of an economic recession in the U.S. and Europe and its implications” (BOK Issue Note) on September 14th. Three teams in the Bank of Korea - the Overall Research and Forecasting Team, the U.S.& Europe Economies Team and the Model Forecasting Team - were involved in publishing this report and it highlights the growing possibility of an economic recession in the U.S. and Europe having a knock-on effect on the Korean economy, which may negatively affect Korea’s economic growth.


    It was revealed in the report that both the U.S. and Europe are exposed to a higher risk of falling into an economic recession, with Europe relatively exposed to a greater risk compared to the U.S. This prediction was made by employing a wide array of indices and quantitative analysis techniques. Although the U.S. may face risks during the process of suppressing demand in an effort to respond to high inflation, its solid labor market and relatively low household debt can be factors that can absorb potential economic shocks.


    Europe is also considered to absorb economic shocks to a certain extent buttressed by its positive hiring market and increased household savings across the region. However, the region is at a disadvantage of implementing efficient measures to respond to such shocks due to the following two reasons - a) the region being prone to external supply disruptions and b) each EU Member State being at a different position in introducing and implementing coherent policies. Once the U.S. and the European economies show clear signs of falling into a recession, the report expects the Korean economy will substantially be affected as this situation can disrupt Korea’s trade. However, the impact on Korea’s economic growth and its consumer prices may vary depending on the source of risks and how these risks unfold to affect the global economy.


    A recession in the U.S. economy is expected to weaken demand from elsewhere, which may consequently result in pushing down Korea’s economic growth and slowing the pace of inflation at the same time. Gyeonghoon Park, the deputy head of the Overall Research and Forecasting Team at the Bank of Korea said, “A decrease in global demand sparked by a recession in the U.S. economy will result in a chain reaction of negatively impacting Korea’s exports by pushing down demand from Korea” and explained, “This means adding downward pressure both on economic growth and the pace of inflation triggered by weak external demand.”


    On the other hand, Europe’s economic recession can trigger a shock in supply, which can be a factor of pushing up raw material prices. If this situation materializes, it can hamper Korea’s economic growth and aggravate inflation. The deputy head also said, “As countless uncertainties persist globally, it is imperative to closely monitor how these uncertainties unfold and how those impact the economy.”


    [This news is provided by Yonhap News]

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