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