Downside risks to the South Korean economy are on the rise due to the prolonged conflict in the Middle East. The Korea Development Institute (KDI) highlighted concerns about increasing global oil prices and supply chain disruptions impacting prices, consumption, and exports. The KDI emphasized that the economy, which was gradually recovering, now faces heightened risks from surging oil prices and uncertainties in the global supply chain.
The conflict in the Middle East, evolving into a broader regional war since late February, has led to market turbulence and higher oil prices. This has raised worries about inflation and a potential economic slowdown. While domestic demand has seen some improvement and exports have shown strong growth, the KDI cautioned that rising oil prices may dampen consumption and disrupt supply chains, affecting exports.
The KDI expressed concerns about potential constraints on facility investment and negative impacts on construction investment due to increased costs linked to the conflict. It also warned about the possibility of deteriorating export conditions amidst a potential slowdown in external demand caused by the crisis. Consumer prices in March rose by 2.2 percent, mainly driven by a spike in petroleum prices, inching closer to the 2 percent target.
