ADB Chief Economist: "South Korea Faces Major Middle East Shock... Growth Forecast to Be Lower Even Considering Semiconductors"

"The Middle East war is expected to lower South Korea's economic growth rate by about 0.9 percentage points this year and about 0.5 percentage points next year."

Albert Park, Senior Economist at the Asian Development Bank (ADB), held a press conference on the 4th (local time) at the ADB Annual Meeting in Samarkand, Uzbekistan, answering questions from reporters. Photo by Bank of Korea

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Albert Park, Senior Economist at the Asian Development Bank (ADB), stated at a press conference held on the 4th (local time) at the ADB Annual Meeting in Samarkand, Uzbekistan, "South Korea is more dependent on imported oil and gas than other economies in the region. As a result, the country is likely to be more negatively affected by the Middle East war than other developing countries in Asia and the Pacific." This was his analysis of the situation.

Park explained, "Last week, reflecting developments in the Middle East war, we released a new base scenario using updated price expectations." He added, "Our analysis that South Korea's economic growth rate will face downward pressure of 0.9 percentage points this year and 0.5 percentage points next year is based on the assumption that international oil prices will average USD 96 per barrel this year and USD 80 per barrel next year." These projections are higher than not only ADB's pre-war outlook but also the forecasts of other institutions such as the International Monetary Fund (IMF). He pointed out, "In this scenario, if inflation rises significantly, the central bank is expected to respond by raising interest rates, which could further slow growth."

Previously, on April 10, ADB's 'Asian Development Outlook April 2026' projected that the South Korean economy would grow by 1.9% this year, with the same growth rate expected for next year. These forecasts only reflected circumstances up to March 10, during the early phase of the Middle East conflict, and assumed the conflict would stabilize within a month. When applying ADB's new base scenario, it theoretically means that South Korea's economic growth rate could fall to 1.0% this year and 1.4% next year due to the Middle East shock.

Albert Park, Senior Economist at the Asian Development Bank (ADB), held a press briefing on the 4th (local time) at the ADB Annual Meeting site in Samarkand, Uzbekistan, responding to journalists' questions. Bank of Korea

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The core of ADB's analysis of the Middle East shock is that oil prices are likely to remain high for a considerable period, even after the conflict ends. Park expects that the prospect of oil prices staying higher for longer will have a more negative impact on regional growth and create greater upward pressure on inflation. In particular, he pointed out that South Korea, which has a notably high dependence on imported oil and gas relative to its GDP, will be strongly affected.

Park explained, "Seventeen percent of the world's liquefaction capacity was affected by bombings, resulting in damage to energy infrastructure and limiting the available energy supply. The Ras Laffan facility in Qatar suffered severe damage and is expected to take three to five years to recover. This means a significant portion of natural gas supply will not recover for quite some time." He emphasized that this shock is caused by the destruction of actual oil and gas production capacity, not merely by the inability to ship energy through the Strait of Hormuz.

However, this analysis only reflects the impact of the Middle East war and does not include the effects of strong semiconductor cycles confirmed in the first quarter, the government’s policy responses such as the supplementary budget passed by the National Assembly on April 10, or other factors. These elements, which were not reflected in the previous 1.9% forecast, are expected to offset some of the downward pressure from the Middle East war. ADB's comprehensive growth outlook, which will incorporate both upside and downside risks, is scheduled to be updated around July.

Nevertheless, Park assessed that even taking into account the "stronger-than-expected semiconductor cycle," this year's growth rate for South Korea could fall below 1.9%. He noted, "If the positive effects of sustained strong demand for AI and semiconductors materialize, they will partially offset the negative growth impact from the Middle East crisis." However, he pointed out, "Because the downward revision to growth forecasts related to the Middle East conflict is quite substantial, ADB's growth estimate is still likely to be lowered even considering better-than-expected semiconductor performance." He further cautioned, "Since semiconductors also require input materials imported from the Middle East, if the conflict is prolonged, the global semiconductor boom's positive growth effect could also diminish."

Meanwhile, Park suggested that for South Korea to advance the internationalization of the won, it should consider not only the internationalization of the currency itself but also of sovereign bonds. He explained, "Korean government bonds have now been included in the World Government Bond Index (WGBI). This means global investors have begun to see Korean government bonds as highly liquid and reliable assets. If Korean companies or banks hold a large amount of Korean government bonds on their balance sheets, and these bonds can be used as collateral in cross-border transactions during the day or overnight, global investors will view the currency and government bonds as a pair." As a result, the won could increasingly be used not only as a means of trade in goods and services but also for financial transactions.

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