The Bank of Korea's Report on 'Characteristics and Risk Factors of the Global Economy'
[Asia Economy Reporter Seo So-jeong] An analysis has emerged that the growth momentum of the global economy next year is expected to significantly slow down due to escalating geopolitical tensions arising during the COVID-19 recovery process, soaring inflation, and responses to it.
On the 4th, the Bank of Korea stated in its publication 'Overseas Economic Focus' in the report titled 'Characteristics and Risk Factors of the Global Economy Next Year' that "The global economy is experiencing rapidly slowing growth in the second half of the year amid significantly increased inflationary pressures caused by rising energy and raw material prices due to the Ukraine war, strengthened monetary tightening by major countries in response, deepening European energy crisis, and sluggish Chinese economy."
Next year, shocks occurring in the three major economic zones?the United States, Europe, and China?are expected to persist, leading to simultaneous contraction of major economies and a slowdown in recovery momentum. In particular, the strengthening of monetary tightening and economic contraction in major countries act as pressures for interest rate hikes and export slowdowns in neighboring countries, increasing economic burdens.
Additionally, while emerging markets show differentiated growth trends, recent signs of economic slowdown in emerging countries have increased concerns about economic downturns. Considering investment contraction during the COVID-19 period and trends in raw material price adjustments, there is a possibility that emerging market growth will weaken.
Furthermore, the Bank of Korea expects that global supply disruptions and slowing growth in major countries will cause global trade to slow mainly among major countries, with rebalancing from goods trade to services trade centered on travel services continuing. The strong US dollar and slowing investment growth are expected to act as factors restricting the recovery of global trade.
Key risk factors for the global economy include 'Fragmentation, delayed recovery of Chinese growth, and vulnerabilities in emerging markets.'
The fragmentation trend triggered by US-China trade conflicts has recently intensified, negatively impacting growth and trade. The risk of fragmentation has heightened since the 2018 US-China trade dispute, further escalated by economic sanctions against Russia, and may expand as competition between the US and China intensifies, especially in advanced industries.
The prolonged sluggishness of the Chinese economy due to lockdown policies and real estate market downturns is a factor delaying global economic recovery. With the continuation of the zero-COVID policy and prolonged real estate market weakness, it is difficult for the Chinese economy to regain growth momentum.
Recently, rapid interest rate hikes and a strong US dollar have reduced global liquidity, increasing risks to emerging market economies. Although the simultaneous occurrence of financial crises in emerging markets is currently unlikely, some vulnerable countries, such as those with current account deficits, harbor latent risks.
The Bank of Korea emphasized, "Recent moves by major countries to adjust the pace of tightening and signs of easing China's epidemic control policies will act as upside risk factors for the global economy after the second half of next year. However, considering the difficulty of expecting active cooperation efforts among countries as in the past, it is necessary to prepare for the possibility of downside risk factors materializing."
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