[Asia Economy Reporter Jang Sehee] Amid expectations of a full-scale US-China confrontation following the Chinese government's enactment of the Hong Kong National Security Law, attention is focused on the potential impact on the South Korean economy. Financial authorities have also begun risk management efforts to prevent a decline in investment sentiment due to the US-China trade conflict.
On the 28th, Lee Ju-yeol, Governor of the Bank of Korea, significantly lowered this year's economic growth forecast to -0.2%. However, this forecast does not reflect the recently escalating US-China tensions, raising concerns that the negative growth rate could be even larger.
Governor Lee stated, "Although conflicts are intensifying mainly around trade issues between the two countries, it is currently very difficult to predict whether these conflicts will materialize, and if so, what measures will be taken and with what intensity." He added, "Therefore, the impact of the US-China conflict was not specifically quantified in this forecast."
The Bank of Korea projected that this year's gross domestic product (GDP) growth rate will turn negative. In February this year, the Bank had forecasted a growth rate of 2.1%, but lowered it sharply within three months. This reflects the comprehensive impact of COVID-19 on exports, investment, consumption, and employment.
If the growth rate turns negative as the Bank expects, it will be the first time in 22 years since the -5.1% contraction during the 1998 foreign exchange crisis. Although there were forecasts of negative growth during the 2009 global financial crisis, the actual growth was 0.8%.
Governor Lee Ju-yeol explained, "Compared to a month ago, the global containment of COVID-19 is being delayed. In particular, the number of confirmed cases is increasing mainly in emerging countries including Latin America." The Bank of Korea projected a growth rate of 3.1% for next year.
The Ministry of Economy and Finance has also begun monitoring signs of a resurgence in US-China tensions and preparing countermeasures. A government official said, "Anti-EU sentiment is rising mainly in Southern European countries, and there are signs that the conflict between the US and China over responsibility for the spread of infectious diseases is reemerging as a trade conflict. We are thoroughly preparing due to the downside risks."
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