[Hot Interview] Hong Seong-guk "Middle East Crisis Likely to Worsen Economic Recession"

PF Maturity Extension Inevitably Leads to Interest Rate Hikes
"April-June Likely to Be Turbulent Due to General Election Impact"

The risk of war originating from the Middle East is escalating as Israel and Iran engage in armed conflict. Following Iran's attack on Israel on the 14th with over 300 projectiles including drones and missiles, concerns have arisen that Israel will launch retaliatory strikes, heightening tensions. Hong Seong-guk, a member of the Democratic Party who is both an economic expert and strategist, expressed in a phone interview with Asia Economy on the 15th that while the risk of escalation between Israel and Iran is not high, this danger could impact inflation and interest rates, thereby exacerbating the economic downturn in South Korea.

Interview_Hong Seong-guk, Member of the Democratic Party of Korea. Photo by Kim Hyun-min kimhyun81@

How do you assess the current risk of war?

This was a foreseeable issue. Since these two countries had not directly clashed before, the fact that they are now engaged in direct armed conflict is serious. Israel will certainly retaliate, but a large-scale war is unlikely.

Why do you judge it this way?

Iran is facing internal difficulties. In particular, its economic situation is poor, and politically it is unstable. Israel is also limited in conducting additional warfare while already engaged in conflict with Palestine. The United States will oppose further escalation as well. If oil prices rise above $100 per barrel, the U.S. economic recovery will inevitably be disrupted. Considering the upcoming presidential election, President Joe Biden cannot remain passive. Additionally, the fact that the two countries do not share a direct border is a limiting factor. Although it is said that Iran could attack via the Mediterranean, given Iran’s naval capabilities, this would be difficult. The crisis may intensify over the next month or two, but it will likely enter a lull phase over time. However, the economic situation is worrisome.

Why is the economy a concern?

Last week, statistics showed that U.S. consumer prices remained at a high level. As a result, the yield on the 10-year U.S. Treasury bond exceeded 4.7%. Coupled with concerns that inflation will remain high and interest rates will not fall due to the climate crisis and other factors, the geopolitical risk from the Middle East acts like pouring fuel on the fire, inevitably worsening the economic recession in the second half of the year. In particular, South Korea faces many project financing (PF) maturities in the second half, and interest rates will rise during the refinancing process. Financial market instability will also increase. There had been hopes that the Chinese economy had bottomed out, but those expectations have been dashed. Moreover, following the general election, there will likely be a chaotic period in April, May, and June due to power struggles between the ruling and opposition parties over economic policy directions.

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