If Global Warming Continues, South Korea's Exports Will Be Hit...Preemptive Measures Needed

Decline in Trading Partners' Income Shrinks Demand for Exports
Supply Reduction in Agricultural, Livestock, and Fisheries Products Drives Import Prices Up

An analysis has revealed that if global warming continues due to climate change, the export value of major export industries in South Korea, such as automobiles, petroleum refining, and chemicals, will decrease.

According to the 'BOK Issue Note - Domestic Ripple Effects of Overseas Climate Change Physical Risks through Export-Import Channels,' released on the 6th by Kim Jae-yoon, Manager of the Sustainability Growth Research Team at the Financial Stability Department of the Bank of Korea, Professor Jeong Seon-moon of Dongguk University's Department of Accounting, and Professor Lee Sung-tae of Hongik University's Department of Electronic and Electrical Engineering, income reductions in trading partner countries caused by climate change damage can lead to a contraction in demand for domestic exports. The report emphasized that domestic companies and financial institutions must proactively respond to overseas climate risks.

According to the report, under the 'NGFS (Network for Greening the Financial System) climate change scenario,' where countries worldwide do not make efforts to reduce greenhouse gas emissions and temperature rise is maximized, the global GDP (Gross Domestic Product) is projected to decrease by 3.8?8.9% cumulatively from 2023 to 2100.

Accordingly, the export value of major industries with high export dependence is calculated to decline sharply. The report states that, cumulatively from 2023 to 2100, domestic automobile exports will decrease by 11.6?23.9%, petroleum refining by 9.7?19.1%, chemicals by 7.6?15.7%, and steel by 7.2?15.6%.

Changes in export value of major domestic industries under continued global warming. Source=Bank of Korea

The report also mentioned that temperature increases lead to a reduction in the global supply of agricultural, livestock, and fishery products, causing import price rises. According to the analysis of the 'SSP5-8.5 scenario,' where countries worldwide do not reduce greenhouse gas emissions and temperatures continue to rise, global agricultural, livestock, and fishery product prices decline until the average temperature increase (compared to 1951?1980) reaches 1.5℃, after which prices begin to rise.

The report explained, "Initially, temperature increases in low-temperature conditions create a mild climate that helps increase crop productivity, exerting downward pressure on crop prices. However, as temperatures continue to rise, crop productivity eventually declines, leading to upward pressure on prices."

Consequently, domestic industrial production contracts, and value-added decreases. Regarding the cumulative value-added fluctuations from 2023 to 2100 due to physical risks from climate change, industries with high dependence on imported agricultural, livestock, and fishery products, such as food manufacturing (-6.1 to -18.2%) and food service (-10.2 to -17.9%), as well as export-heavy industries like automobiles (-6.6 to -13.6%), petroleum refining (-5.8 to -11.6%), and chemicals (-5.0 to -10.2%), are expected to experience declines in value-added.

In addition to chronic temperature increases, if physical damage expands due to additional natural disasters, overseas climate risks could affect the domestic economy more significantly than expected through global supply chains.

Therefore, the report suggested, "Domestic companies need to closely monitor climate change risks in regions where their overseas trading partners are located and strengthen global supply chain management by diversifying export and import routes." It also recommended, "Financial supervisory authorities and financial institutions should establish climate risk management systems and conduct stress tests that consider not only domestic climate risks but also the ripple effects of overseas physical climate change risks."

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