Summary
- "U.S."'s uncertainty over imposing tariffs has led the Bank of Korea to report that Korea's economic growth rate will fall by 0.13%percentage point this year and 0.16%percentage point next year.
- This uncertainty leads to reductions in consumption, investment, and exports, and in particular causes significant disruptions to companies' entry into overseas markets and investment decisions.
- However, the Bank explained that recent tariff negotiation settlements have partially eased uncertainty, mitigating the decline in the growth rate.
It was analyzed that South Korea's economic growth rate would fall significantly due to 'uncertainty' stemming from U.S. pressure to impose tariffs. Even if tariffs are not actually imposed, growing uncertainty adversely affects consumption, investment, and exports.
On the 1st, the Bank of Korea estimated in a report titled 'The Impact of U.S. Trade Policy Uncertainty on Our Growth' that a mindset preparing for tariffs would reduce this year's economic growth rate by 0.13%percentage point. Next year, the decline in the growth rate is expected to widen to 0.16%percentage point.
This is because exports and investment decrease sharply. The Bank explained, "As uncertainty increases, companies' decisions to enter overseas markets and invest, which involve large fixed costs, have been hindered." In the case of exports, initially after uncertainty arises there is a temporary increase due to early shipments in preparation for tariff hikes, but afterwards, as U.S. import demand decreases in earnest, exports are expected to be hit.
Households were found to reduce consumption. This is the effect of strengthened precautionary saving motives to prepare for economic uncertainty.
However, the fact that tariff negotiations were settled last month, thereby at least partly removing uncertainty, is a positive factor. If the negotiations had not been settled last month, the negative impact on this year's and next year's growth rates would have been estimated at -0.17%percentage point and -0.27%percentage point, respectively. This means the tariff deal raised growth rates by 0.04percentage point and 0.11%percentage point, respectively.
The Bank said, "Since uncertainty in the trade environment can have a considerable impact on our economy, it is necessary to continue close trade consultations between the two countries in detailed aspects to ensure that uncertainty regarding U.S. trade policy related to our country does not increase again in the future."
Reporter Kang Jin-gyu josep@hankyung.com
Korea Economic Daily
hankyung@bloomingbit.ioThe Korea Economic Daily Global is a digital media where latest news on Korean companies, industries, and financial markets.
