Year-long Iran war could push South Korea's economic growth to sub-1% level

An analysis suggests South Korea's economic growth rate could fall into the sub-1% range this year if the conflict in Iran is prolonged for a year. NH Financial Research Institute predicted that high inflation would curb both consumer spending and corporate investment, dealing a blow to the overall economy. The Bank of Korea had forecast a 2% growth rate for the year on February 26, but this is expected to be significantly lower if the war continues. The analysis indicates that South Korea's growth rate could decrease by at least 0.3 percentage points if average international oil prices reach $100 per barrel.

International oil prices are currently hovering around $100 per barrel, intensifying inflationary pressures. The surge in oil prices has driven up overall price levels, creating a situation of high oil prices, high exchange rates, and high inflation occurring simultaneously. Concerns about stagflation, characterized by persistent price increases amid economic slowdown, have been raised. The difficult situation caused by high oil prices exacerbating inflation has also made it harder to lower the benchmark interest rate.

In the stock market, trading volumes have sharply declined due to increased volatility. The average daily trading value of the KOSPI, which was 48 trillion won in the first week of March, fell to around 27 trillion won within a week. Trading volumes for Exchange Traded Funds (ETFs) also decreased from 35 trillion won to 19 trillion won. Leveraged investing, which had raised concerns of overheating, also saw a reduction, indicating a general contraction in investment sentiment.