"Second Half Uncertainty in Han Economy... Risks Including Strong Dollar and China's Balance Sheet Recession"

Hyundai Research Institute 'Global Economic Risk Factors and Implications' Report

Analysis suggests that risk factors such as the global economic slowdown, strong dollar, and China's balance sheet recession will begin to impact our economy from the second half of the year.

On the 10th, Hyundai Research Institute released a report titled 'Global Economic Risk Factors and Implications' containing these findings.

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The institute expects the global economy to peak out (turn downward) starting from the second half of this year.

In major advanced economies such as the United States and the Eurozone (19 countries using the euro), the recovery is projected to slow after peaking in the second quarter, while emerging and developing countries are expected to see a deceleration in economic growth rates in the second half compared to the first half.

As of last year, the shares of the United States and China in the global gross domestic product (GDP) were approximately 25.4% and 18.1%, respectively. Major global investment banks (IBs) predict that the U.S. economic growth rate will slow from 1.9% this year to 0.8% next year, and China’s growth rate will decrease from 5.1% to 4.6% during the same period.

According to the institute, the strong dollar is expected to continue into the first half of next year, raising concerns about its adverse effects.

The dollar has been strong for a year and a half since April last year. The value of the dollar surged as the U.S. Federal Reserve (Fed) raised interest rates starting last year, and the dollar’s strength has persisted due to delays in the Fed’s monetary policy shift. There are concerns about rising energy and food prices denominated in dollars, as well as capital outflows from emerging countries.

China’s economy entering a 'balance sheet recession' is another factor increasing uncertainty for the domestic economy in the second half of the year. The concept of a balance sheet recession, first introduced to explain Japan’s prolonged recession, refers to a situation where economic agents struggling with recession prioritize repaying excessive debt, so even if liquidity is injected, consumption and investment do not expand.

China’s corporate debt-to-GDP ratio has steadily increased since the 2008 global financial crisis, reaching 158.2% at the end of last year, and the real estate market index has remained below the baseline of 100 since January last year.

Despite reopening (resumption of economic activities) and monetary easing by the People’s Bank of China, consumption continues to slow, prompting discussions about whether China’s economy is entering a balance sheet recession.

Additionally, rising international commodity prices, including crude oil, and weakening expectations for foreign direct investment (FDI) are factors that further fuel uncertainty.

The institute stated, "As the possibility of a downward stabilization of global economic growth increases, it is necessary to rationally manage investment and fiscal policies and establish a virtuous cycle that expands the consumption and growth base through investment recovery."

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