"Possibility of Economic Slowdown Expands in Major Countries Including the US... Domestic Containment Needed"

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), is seen holding a press conference after concluding the Federal Open Market Committee (FOMC) regular meeting at the Fed headquarters in Washington DC on July 27 (local time). On this day, the Fed took a 'giant step' for the second consecutive month since June to curb soaring inflation by raising the benchmark interest rate by 0.75 percentage points at once. The U.S. benchmark interest rate rose from the previous 1.50-1.75% to 2.25-2.50%, surpassing South Korea's benchmark interest rate (2.25%). (Image source: AP Yonhap News)

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[Asia Economy Reporter Moon Chaeseok] The Hyundai Research Institute stated on the 18th that proactive external risk management is necessary to prevent the economic slowdown in major countries such as the United States and the Eurozone from spreading to the domestic economy.

In the report titled "Global Economy, Differentiation Progressing Amid Increasing Downward Pressure - Recent Major Countries' Economic Trends and Implications" released on the same day, the institute analyzed this situation. The institute diagnosed that the prolonged war between Russia and Ukraine, combined with accelerating monetary tightening in major countries amid high inflation, is raising the possibility of a global economic slowdown.

First, the U.S. economy experienced inflation due to the sharp rise in raw material prices caused by the war between Russia and Ukraine, recording negative growth for two consecutive quarters. In the second quarter, the U.S. Gross Domestic Product (GDP) growth rate was -0.6% annually, showing negative growth for two consecutive quarters following -1.6% in the first quarter.

The probability of a U.S. recession, as identified by Bloomberg, has continuously increased this year, heightening recession concerns. The U.S. Federal Reserve (Fed) is simultaneously implementing rapid interest rate hikes and quantitative tightening to combat high inflation. In particular, at the Jackson Hole meeting on August 26, Fed Chair Jerome Powell stated that the Fed would maintain a restrictive interest rate level for an extended period until there is confidence that inflationary pressures have eased.

The institute forecasted that the Fed's policy interest rate could rise to the high 3% range to 4% by the end of this year. Furthermore, it noted that consumption sluggishness caused by high inflation and high interest rates could increase the downside risks to the U.S. economy. The Eurozone economy is also facing increased risks of economic slowdown due to Russia's suspension of gas supplies. Following its invasion of Ukraine, Russia declared a halt to gas supplies to Europe as retaliation against European sanctions. Europe’s high dependence on natural gas means the energy crisis could significantly worsen its economy.

The Hyundai Research Institute stated, "Given the high likelihood of continued global supply chain disruptions due to the prolonged war between Russia and Ukraine, it is necessary to strengthen energy and resource diplomacy to improve domestic supply-demand imbalances." It added, "As concerns over declining domestic exports grow, active communication and cooperation among the government, public, and private sectors are essential to respond swiftly to changes in the external export environment."

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