The Bank of Korea: "Probability of South Korea's Economic Recession in the Next Year 0.8%... US 15%, Europe 32%"

"Domestic Growth and Inflation Trajectories Vary Depending on Developments in Domestic and External Uncertainties"

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] The Bank of Korea estimated that the probability of a recession occurring in South Korea over the next year will be quite low at 0.8%. It predicted that the probability of a recession in Europe is 32%, higher than that of the United States (15%).

On the 31st, the Bank of Korea stated in its August 'Financial and Economic Issue Analysis' report, "Based on various indicators and quantitative analysis methods, the possibility of a recession has recently increased in both the United States and Europe," adding, "The likelihood of a recession is relatively higher in Europe than in the United States."

First, it analyzed that if recessions in the US and European economies materialize, the impact on the Korean economy through trade channels and others would be considerable. The Bank of Korea said, "The impact on domestic growth and inflation will vary depending on the source of the shock (demand or supply shock) and the global economic transmission patterns."

In the case of a contraction in external demand due to recessions in major countries such as the US and China, domestic growth and inflationary pressures are expected to slow simultaneously. On the other hand, if supply shocks originating from Europe intensify and raw material prices rise significantly, the domestic growth rate is expected to decline further while inflation will expand.

Kim Woong, Director of the Bank of Korea's Research Department, wrote on his blog, "If the Ukraine situation worsens and raw material prices rise sharply, domestic growth will decline but inflation could increase significantly," expressing concern that "even if external conditions develop as expected, if strong secondary inflationary effects occur domestically, high inflationary pressures could persist longer than anticipated." He explained that if high inflation expectations continue, they could influence price and wage setting, potentially leading to sustained high inflation.

Director Kim added, "The future path of domestic growth and inflation will vary greatly depending on how domestic and external uncertainties unfold," and emphasized, "Especially as we approach the end of the year, uncertainties regarding external conditions such as the US Federal Reserve's interest rate hikes, Europe's gas supply situation, and China's quarantine policy stance are expected to become more concrete. Therefore, it is necessary to carefully monitor their developments and economic impacts while assessing the economic situation."

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