Middle East war could put pressure on Korea’s growth: ADB

(Yonhap)

The Asian Development Bank (ADB) said on Monday, local time, that a prolonged Middle East war could exert downward pressure of 0.9 percentage point on South Korea’s economic growth this year.

According to Yonhap News, Albert Park, ADB’s chief economist, made the remarks during a meeting with Korean reporters at the ADB Annual Meeting in Samarkand, Uzbekistan.

Park, a Korean-American economist, heads the Economic Research and Development Impact (ERDI) Department, which oversees the publication of ADB’s economic outlook reports.

He noted that the prolonged Middle East conflict would likely extend disruptions to oil supply chains, keeping crude prices elevated for some time.

Park said that the ADB projects an average of $96 per barrel this year and $80 per barrel next year. Under this new baseline scenario, Korea’s economic growth could be reduced by 0.9 percentage point this year and 0.5 percentage point next year.

He added, however, that these estimates do not take into account factors such as strong semiconductor exports and are not final projections.

Park noted that given the significant downward pressure from the Middle East conflict, there is a high likelihood that ADB’s growth outlook will be lowered even when considering unexpectedly strong semiconductor performance.

He also pointed out that semiconductor production relies on materials imported from the Middle East, adding that prices for these materials could rise or their supply could become constrained.

Park emphasized that the current semiconductor cycle differs fundamentally from past ones in that it is driven by artificial intelligence (AI).

He said that if productivity gains from AI materialize, the semiconductor cycle is likely to last for quite some time.

Regarding concerns about stagflation, Park said that Korea also benefits from the semiconductor cycle, and overall, the country’s growth is expected to remain solid.