Supply Chain, Household Debt, External Adversities... Korean Economy Faces a 'Perfect Storm'

FKI Conducts Survey of 150 Professors in Economics and Business Fields

[Image source=Yonhap News]

[Asia Economy Reporter Jin-ho Kim] Concerns are rising that the Korean economy will face a so-called "perfect storm (a massive complex crisis)" due to the global increase in economic uncertainty. Supply chain disruptions caused by the COVID-19 pandemic, astronomical household loan defaults, and the issue of a hard landing of the Chinese economy have emerged as the biggest core risks.

The Federation of Korean Industries (FKI) commissioned a survey through the public opinion research agency Mono Research targeting 150 professors in business-related fields at universities in the Seoul metropolitan area. The results of the survey on "Economic risks that the Yoon Suk-yeol administration should be mindful of" were announced on the 15th.

More than half of the responding professors expressed concerns about the negative impact on the Korean economy due to "intensified supply chain disruptions caused by escalating US-China conflicts and the prolonged Ukraine crisis." The proportion of respondents who estimated the probability of this issue occurring reached 60%. Additionally, about 65% of the total respondents said the risk to the Korean economy if this occurs would be severe.

When asked "What countermeasures are needed to prepare for supply chain disruptions?" the most important policy chosen was "diversification of import sources for key raw materials" (42.2%). This was followed by improving industrial structure to enhance energy efficiency (16.5%) and expanding overseas resource development (15.3%).

In particular, the possibility of a financial crisis triggered by household loan defaults, identified as the biggest time bomb for the Korean economy, was also raised. More than half of the respondents answered that the probability of occurrence is high. The proportion of those who said the risk to the Korean economy would be severe if it occurs was 50%. Effective solutions for household debt proposed by the professors included raising the base interest rate (28.5%) and strengthening households' financial resilience through employment expansion.

The professors anticipated that external risks, especially uncertainties in the Chinese economy, would also negatively affect the Korean economy. They viewed the likelihood of a hard landing in China’s economy?due to the real estate bubble burst, excessive corporate debt collapse, and COVID-19 lockdowns?as high. In preparation for a downturn in the Chinese economy, the policy most frequently recommended for government implementation was "support policies for export diversification" (47.0%). This was followed by building a stable financial system defense (29.5%) and strengthening domestic demand support measures in industries highly dependent on China (18.6%).

The professors also responded that the possibility of stagflation, similar to the past oil shocks, is high. When categorizing the probability of occurrence, 40% answered that it is high. As countermeasures for stagflation, maintaining interest rate hikes and focusing on price stability were cited.

Furthermore, there was also a high probability pointed out for "manufacturing contraction due to national greenhouse gas reduction." Among related policies, the most urgent areas for improvement were expanding support for carbon reduction technologies (33.8%) and support for decarbonization strategic technologies (24.4%), with many opinions emphasizing the urgent need for catching up in technology support.

Choo Kwang-ho, head of the FKI Economic Headquarters, stated, "The new administration is launching amid a complex economic crisis as domestic and external uncertainties intensify," and added, "Since policy capabilities are limited, it is necessary to prioritize managing domestic and external risks with high probabilities of occurrence and significant ripple effects on our economy, such as intensified supply chain disruptions."

This content was produced with the assistance of AI translation services.