SEOUL, North Korea's denuclearization would have broad positive implications for the South Korean economy, but its imminent impact would be modest, a global investment bank said Tuesday.
"An agreement on denuclearization, if reached, could have far-reaching implications for the Korean economy and potentially the region," Goldman Sachs said in its latest report.
Pyongyang's move to give up its nuclear arsenal will lead to a "possible growth boost and falling geopolitical risks," the bank said, noting that the normalization of inter-Korean relations would entail a buildup in investment spending and transfers by South Korea to its communist neighbor.
But Goldman Sachs forecast that imminent effects of the North's denuclearization pledge will be limited, as it would take time before any infrastructure investment and other economic interactions between the two Koreas take place due mainly to sanctions imposed by the United Nations against the North.
"Initial fiscal stimulus (caused by the denuclearization deal) would be modest -- 0.2 percent of GDP at maximum -- and unlikely to be front-loaded, with near-term boosts limited mostly to consumer confidence and tourism recovery," the report said.
"A failure to reach a deal or deliver action would likely weigh on equity markets, weaken the Korean won and elevate U.S. dollar-funding premium. That said, the main drivers of policy rate decisions in the short term would continue to be cyclical factors, of which momentum has recently softened," according to the bank.
The improved inter-Korean ties would also cause upside pressure on inflation and boost other economic uncertainties, leading Seoul's central bank to take a hawkish stance, it said.
North Korean leader Kim Jong-un has vowed to strive to make the Korean Peninsula nuclear free after the historic inter-Korean summit last month. Kim is now awaiting another high-stake meeting with U.S. President Donald Trump slated for next month in Singapore.
Source: Yonhap News Agency