Fear of "S (stagflation)" is spreading in the Korean economy.
An alarm is sounding for the U.S. economy, which immediately has a major impact on our economy. While growth is slowing, inflationary pressure is building. U.S. President Donald Trump has consistently pressured the Central Bank, the Federal Reserve (Fed), to cut its benchmark interest rate, but even that does not look easy.
A U.S. slowdown has no small ripple effects on our economy. On top of that, with projections that the Middle East war could last longer than expected, international oil prices have surged to around $100 per Barrel, and the won-dollar exchange rate has climbed to around 1,500 won. It is the first time in 17 years, since March 2009 during the global financial crisis, that the won-dollar rate topped 1,500 won in weekly trading.
Bang In-seong, an analyst at Eugene Investment & Securities, said, "I see the possibility of a U.S. recession as low, but as growth slowed in the fourth quarter of last year and inflationary pressure grew, market concerns about 'S fear' will increase."
Among recently released economic indicators, U.S. real gross domestic product (GDP) for the fourth quarter of last year is heightening market concerns. The figure grew 0.7% from the previous quarter, a sharp downward revision to exactly half from the advance estimate of 1.4% released last month. Bang said it "shows growth momentum has fallen off sharply."
Inflationary pressure is also unsettling. As signs point to a prolonged war in the Middle East, international oil prices are soaring, which is expected to be reflected soon in inflation gauges.
The Fed's dilemma is also expected to deepen. Investors see a high likelihood that the Fed will hold rates steady at the Federal Open Market Committee (FOMC) meeting on the 17th–18th of this month (local time). While a hold is likely for now, as fear of stagflation grows, the Fed's room for policy decisions will inevitably narrow.
Our economy is structured to be heavily influenced by external conditions. The possibility of a U.S. slowdown, the Fed's policy path, and movements in international oil prices and exchange rates could all weigh on our economy.
Still, despite changes at home and abroad, some forecast the Korean economy will show a modest growth trend. Kim Jin-seong, an analyst at Heungkuk Metaltech Securities, said, "The Korean economy is expected to recover to growth in the 2% range," adding, "Exports will drive overall economic growth on the back of the semiconductor supercycle, and as policy lags from plans to expand infrastructure investment are reflected, a K-shaped recovery is expected."
In the short term, related stocks are expected to benefit as the March regular shareholders' meeting season arrives. Kang Hyeon-gi, an analyst at DB Securities, said, "In this shareholders' meeting season, there will likely be many corporations announcing cancellations of treasury shares under the third amendment to the Commercial Act," adding, "It is worth paying attention to holding companies and financials, where a high share of treasury holdings could lead to cancellation decisions."