Albert Park, chief economist and director general of the Economic Research and Development Impact Department at the Asian Development Bank (ADB), said on the 4th (local time) at the ADB annual meeting in Samarkand, Uzbekistan, that "Korea's economic growth rate could fall by 0.9 percentage points this year and 0.5 percentage points next year." The analysis is based on ADB's latest scenario that, due to the U.S.-Iran war, oil prices will average $96 per barrel this year and $80 per barrel next year.
Earlier, on the 10th, ADB projected that Korea's economy would grow 1.9% both this year and next year. That forecast reflected only the early stages of the U.S.-Iran war and assumed the two countries' conflict would stabilize within a month. However, applying ADB's latest scenario that reflects the current situation implies that Korea's growth rate would be, theoretically, 1% this year and 1.4% next year.
Park said, "Korea's dependence on crude oil imports is high, so the impact of high oil prices is significant, and the Central Bank will respond to the resulting inflation by raising interest rates, which will slow growth." Park also said, "Korea relies more on imported oil and gas than other economies," and "will be more negatively affected than developing countries in Asia and the Pacific overall."
Park added that this analysis does not take into account positive factors such as strong semiconductor exports from Korea. Semiconductors could offset the negative effects of the Middle East war. Still, Park expected that ADB's growth forecast for Korea this year (1.9%) is likely to be revised downward. ADB plans to release revised growth projections in July.
Regarding concerns about stagflation (rising prices amid an economic slowdown), Park said, "There is also the tailwind of the semiconductor cycle, so overall growth will be solid," adding, "Once the Middle East war ends, prices will eventually normalize even if it takes time, so it cannot be called stagflation."
In the first quarter of this year, Korea's real gross domestic product (GDP) grew 1.7% from the previous quarter on a preliminary basis, the highest since the third quarter of 2020 (2.2%). While semiconductors enjoyed a boom, the impact of the Middle East war was only partially reflected. The Bank of Korea said the effects of the Middle East situation will be reflected mainly in the second quarter of this year.