Hyundai Research Institute "Global Economic Risk STORM, Until Next Year... Increased Possibility of Recession"

[Asia Economy Reporter Choi Dae-yeol] The Hyundai Research Institute forecasted that from the second half of this year through next year, five global economic threat factors will emerge, raising the possibility of a large-scale economic crisis, the so-called "Perfect Storm." The five factors are global economic stagnation (Stagnation), the US-China trade war (Trade war), oil shock (Oil shock), the Russia-Ukraine war (Russia), and the radical monetary policy of the US Federal Reserve (Monetary policy). Taking the first letter of each, they named it STORM.

On the 12th, the institute released a report containing these details in its Economic Weekly. Regarding the possibility of a global economic downturn, it judged that "the post-COVID crisis upward phase in the economic cycle has ended, and the downward phase is beginning." Signs of economic decline have already been detected in advanced countries, and downward pressure due to the contraction in advanced economies is expected to increase in emerging countries as well. The institute analyzed that the economic situation next year is unlikely to improve compared to this year.

The impact of the ongoing US-China trade war since 2018 remains significant. Following former President Trump, the Biden administration is intensifying competition over technological supremacy, spreading across diplomatic and military issues on all fronts.

The institute explained, "In the trade sector, unlike the Trump administration, the Biden administration emphasizes alliances with allied countries, intensifying competition over supply chains, markets, and technological supremacy in the Asia region," adding, "The Indo-Pacific Economic Framework (IPEF) was launched to build a US-led supply chain excluding China in advanced industries," and "Through the 'Fab 4,' cooperation with South Korea, Japan, and Taiwan is being strengthened to secure US technological and industrial hegemony in semiconductors, a key industry of the global economy."

President Joe Biden of the United States

High oil prices are expected to ease as energy demand decreases due to the global economic slowdown. Since the second half of last year, oil prices surged due to economic recovery, large-scale liquidity supply, and the war, but recently, various factors including interest rate hikes have intertwined, leading to a slight decline. However, the institute anticipates that if Russia tightens gas export controls during the energy peak season from the end of this year to early next year, high oil prices may persist long-term. Conversely, if interest rate hikes accelerate or the economic downturn intensifies, the pace of oil price decline after next year could quicken.

The Russia-Ukraine war has entered a stalemate phase, weakening its downward pressure on the economy, according to the institute. However, decisions regarding Russia's gas supply remain a potential threat. Additionally, the US Federal Reserve is expected to raise interest rates above 4.00% by the end of this year or the first half of next year and maintain them for a considerable period, which is likely to sustain inflationary pressures domestically. This may also motivate capital outflows from emerging countries.

President Vladimir Putin of Russia

The institute concluded, "The influence of the five risk factors (STORM) is likely to continue into 2023, making the possibility of a global economic downturn or stagnation very high," adding, "However, their impact is expected to gradually diminish over time, and some issues may be resolved themselves, so it is more likely that we will experience a global economic stagnation within a limited scope for a certain period." Nonetheless, it warned that if an uncontrollable shock such as a hard landing of the Chinese economy occurs, the economic crisis could become a reality.

The institute advised, "We must develop proactive crisis response capabilities to address the possibility of a global economic downturn and expand safety nets for vulnerable groups," and "In response to the bifurcated global industrial restructuring and the intensifying technological supremacy war, flexible trade diplomacy strategies and securing core and foundational technologies are essential."

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