An analysis has emerged indicating that the demand shocks from the United States and China have the greatest impact on South Korea's gross domestic product (GDP). While China's influence has decreased since the U.S.-China trade conflict in 2018 and the COVID-19 pandemic in 2020, the influence of the United States has grown. To minimize uncertainties stemming from future shifts in U.S.-China policy, it is suggested that South Korea diversify its export markets.
The Bank of Korea announced the 'BOK Issue Note, results of BOK-GPM reconstruction' on the 1st. BOK-GPM refers to the Bank's Global Projection Model. The Bank of Korea has rebuilt the model to reflect changes in the global economic environment and the latest overseas research trends.
Based on the reconstructed BOK-GPM, the Bank of Korea projected changes in South Korea's GDP due to ▲ major countries' demand shocks ▲ U.S. currency policy shocks ▲ U.S. financial shocks. As a result, the demand shocks from the United States and China had the greatest impact on South Korea's GDP, followed by emerging SIS Dental, the eurozone, and Japan.
Changes in the influence of the United States and China have also been detected. While the impact of China's demand shocks has somewhat decreased from 2010 to 2023, the influence of the United States has expanded. Director Jeong Seung-ryeol of the Bank of Korea's policy analysis team noted, "The influence of China on our economy has somewhat decreased due to the fragmentation of global trade and the impact of the U.S.-China trade conflict in the late 2010s, while exports to the U.S. have increased more significantly."
The shock from U.S. currency policy also expanded its impact on the domestic economy compared to the previous model. The Bank of Korea explained, "The deterioration of U.S. financial conditions does not just affect the domestic economy but leads to a reduction in global dollar liquidity supply," stating that "the financial conditions of countries outside the U.S., which rely on external currency borrowing, have also worsened, reflecting the effects of a contraction in the real economy."
The impact of the rise in U.S. credit spreads due to the deterioration of U.S. financial conditions has also increased, showing greater influence on our economy and a longer duration.
The report stated, "To reduce potential risks from future changes in U.S.-China policy, it is essential to promote the diversification of export markets while closely monitoring the direction of the U.S. dollar and changes in U.S. financial conditions and their impact on our economy."
The Bank of Korea constructed the newly reconstructed BOK-GPM by adding the emerging SIS Dental block to the existing five economies: South Korea, the United States, China, the eurozone, and Japan. It refined the exchange rate pathway and strengthened the financial linkages between countries. The Bank plans to utilize this model for future global economic forecasts and policy analysis concerning external shock impacts.