The economy faces increased downside risks

The institute said in its monthly economic assessment report that the South Korean economy, the fourth largest in Asia, is on the path of moderate recovery, but downside risks are increasing in manufacturing industries due to the economic slowdown in the United States and China.

The report stated: “External conditions deteriorated with economic growth in China slowing at a significant pace, and the US economy recorded a quarterly contraction… The indirect impact of higher interest rates also casts a shadow on overall economic activity.”

Concerns about stagflation, a combination of slowing growth and rising inflation, have been heightened by escalating economic uncertainty from the Ukrainian crisis and the US Federal Reserve’s hike in interest rates.

South Korea’s exports rose 9.4% year-on-year in July, extending the rise for the 21st consecutive month, but the country ran a trade deficit for the fourth consecutive month due to rising global energy prices.

The government said earlier that the Korean economy may lose momentum, due to growing economic uncertainty abroad, leading to weak investment and export growth.

Fears about a global recession have also been heightened by concerns that the Federal Reserve’s aggressive tightening of monetary policy could cause the US economy to slide into recession.

South Korea is also facing mounting inflationary pressures due to higher energy and food prices and a recovery in demand after its previous decline due to the pandemic.

The CPI rose 6.3% year-on-year last month, the fastest year-on-year rise in nearly 24 years, and an acceleration from the index’s 6% year-on-year rise in June.

High inflation erodes the purchasing power of citizens and can affect private spending. The interest rate hike aims to curb inflation, but it may increase the burden of debt servicing and slow economic growth.

The country’s retail sales also declined for the fourth consecutive month in June, as high inflation and higher interest rates weighed on consumer confidence, according to Statistics Korea.

In July, the Bank of Korea made an unprecedented rate increase of 0.5 percentage point in an attempt to tame inflation, marking the sixth rate increase since August last year. The central bank is widely expected to raise interest rates again in July. the coming months.

The government lowered its forecast for economic growth in 2022 to 2.6 percent, while sharply raising its inflation forecast to a 14-year high of 4.7 percent.

The Bank of Korea also expected the economy to grow by 2.7% and inflation to rise by 4.5% this year.

Source: Yonhap

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.