"Korean Economy Faces Concerns of Combined Domestic and Export Recession... Policy Priorities Must Shift to Economic Downturn"

[Asia Economy Reporter Choi Dae-yeol] There is a forecast that our economy will enter a downturn or recession phase after the second half of this year. Until now, exports have served as a certain support, but from the second half onward, both domestic demand and exports are likely to decline.

In a weekly economic trend report released on the 4th, Hyundai Research Institute stated, "The sharp rise in import prices and the Russia war are negatively impacting and weakening the growth potential of the Korean economy," adding, "Exports are maintaining an upward trend and acting as an economic safety net, but after the second half when export price factors weaken, there is concern about a complex recession where both domestic demand and exports stagnate."

The institute viewed that inflation has passed its peak. However, it analyzed that the consumption cliff due to high prices continues, and the slump in facility investment such as transportation equipment and machinery has prolonged. It diagnosed that household and corporate sentiment has been significantly depressed. From an industry perspective, the institute's analysis is that the growth in manufacturing production is weakening, and inventories are accumulating in manufacturing, increasing the possibility of an economic downturn.

Busan Port Sinsundae Pier

The reasons for the pessimistic outlook on the future economic situation include the downturn in export conditions, import price instability due to won depreciation, and consumption contraction caused by high interest rates and high prices. The institute forecasted, "The possibility of a global economic recession has increased after the second half of this year, and concerns about a downturn in export conditions are spreading," adding, "A downturn in Korea's export conditions is inevitable."

It further analyzed, "The rise in import prices caused by a sharp increase in exchange rates can act as an obstacle to stabilizing inflation," and "Although rebound consumption was expected with the transition to endemic (periodic infectious disease outbreaks), consumption contraction is ongoing due to reduced real purchasing power of households caused by high interest rates and prices."

Economic Trend Outlook by Scenario for the Second Half of the Year

Regarding the timing of a rebound after the downturn or recession phase, the institute assessed that various scenarios are possible. Taking a neutral view, it expects the current economic shock to continue until the first half of next year, followed by a rebound opportunity and a gradual recovery trend. From a pessimistic perspective, it sees the possibility that the downturn phase continues without establishing a turning point for rebound, leading to a prolonged recession. Conversely, from an optimistic viewpoint, it foresees a rapid V-shaped rebound trend due to positive issues such as a dramatic resolution of the Russia war.

The institute stated, "In preparation for the possibility of continuous and complex external shocks, the government’s crisis response capabilities should be proactively supplemented, and the current status of vulnerable economic sectors should be identified with support measures prepared," adding, "The top priority of economic policy needs to gradually shift from ‘price stability’ to ‘defense against economic recession.’"

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