Seoul: Downside risks to the South Korean economy are increasing amid the prolonged conflict in the Middle East as rising global oil prices and supply chain disruptions could have broader negative impacts on prices, consumption, and exports, a state-run think tank said Tuesday.
According to Yonhap News Agency, the Korea Development Institute (KDI) indicated in its monthly economic assessment that the South Korean economy, which had shown a gradual recovery, is now confronting heightened downside risks. These risks are attributed to surging oil prices and growing global supply chain uncertainties stemming from the ongoing conflict in the Middle East.
The KDI had initially raised concerns about potential downside risks from the geopolitical crisis early last month. Now, the think tank has issued a more explicit warning as the conflict, which began in late February, has evolved into a broader regional war. This escalation has disrupted global financial markets and driven up oil prices, igniting fears of inflation and a potential economic slowdown.
Despite these challenges, the KDI noted that domestic demand has shown moderate improvement, and exports have continued to grow robustly, largely fueled by strong demand for semiconductors. However, the rising oil prices could negatively impact consumption, while supply disruptions and weakening demand might also affect exports.
The think tank further highlighted that facility investment could face limitations, and construction investment might suffer due to increased costs linked to the conflict. It also warned that exports could encounter worsening conditions amid a potential slowdown in external demand because of the crisis.
Consumer prices in South Korea rose by 2.2 percent in March, up from 2 percent in February, primarily driven by a spike in petroleum prices. While inflation remains close to the 2 percent target, the KDI cautioned that upward pressure could intensify as the impact of the Middle East conflict continues to spread.