The Bank of Korea: "Manufacturing Will Improve After Global Interest Rate Hikes End... China's Economy Remains a Variable"

'Global Manufacturing Industry Outlook and Implications for Our Economy' Report
"Need for Export Market Diversification and Green Transition"

The Bank of Korea forecasted that once the global interest rate hike cycle ends after next year, the global manufacturing economy will revive, but China's economic situation may pose constraints.

In its report titled "Assessment of the Global Manufacturing Economy and Implications for Our Economy," released on the 25th, the Bank of Korea stated, "If the global monetary tightening stance eases in the future, it will have a positive impact on the manufacturing economy," but also explained, "China's sluggish real estate market and trend of slowing growth may limit a rapid improvement in the global manufacturing sector."

The Bank of Korea noted, "The global manufacturing economy, which greatly affects our exports, has been in a downward phase since last year," adding, "The gap with the service sector is unusually large, the period of sluggishness is long, and it appears differently across countries and industries, distinguishing it from previous downturns."

Furthermore, the Bank identified the main causes of the recent global manufacturing downturn as the substitution of goods consumption for face-to-face services due to the easing of pandemic-related restrictions, global monetary tightening, the US-China trade dispute, and the Ukraine war. It analyzed that increased uncertainty has led to a slowdown in capital investment by major countries. The sluggish durable goods consumption in China after reopening was also a limiting factor.

The Bank of Korea projected that if the global monetary tightening stance eases after next year, it will positively affect the manufacturing economy. It analyzed that as goods consumption normalizes and inventory adjustments, which increased due to supply chain disruptions in the early pandemic, subside, companies will increase manufacturing production again. Son Min-gyu, deputy head of the International Trade Team at the Bank of Korea's Research Department, said, "If interest rate cuts occur, I believe there will be a gradual positive impact on goods consumption and global manufacturing with some time lag."

According to the report, in the mid to long term, supply chain restructuring and green transition could also affect the manufacturing economy. The Bank of Korea explained, "Major countries are actively seeking to secure their technological and production leadership, focusing on advanced industries." In particular, due to conflicts with the US, China's exports to Belt and Road Initiative (一帶一路) partner countries are increasing compared to trade with other advanced technology countries. Increased investment in green manufacturing sectors such as batteries and solar energy is also bringing changes to the industry environment.

The Bank of Korea suggested, "For our economy to appropriately respond to changes in the manufacturing economic structure and expand growth engines, efforts to diversify export markets and strengthen industrial competitiveness are necessary, along with accelerating the green transition."

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