KDI warns of economic risks due to Ukraine war and inflation

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KDI warns of economic risks due to Ukraine war and inflation

The Korean economy is on a moderate recovery track, but it faces greater downside risks as external economic uncertainty has heightened amid the Ukraine crisis, a state-run think tank said Thursday.
Asia's fourth-largest economy has extended its recovery momentum, led by robust growth in manufacturing, but business sentiment has worsened as Russia's invasion of Ukraine has jacked up raw material prices, the Korea Development Institute (KDI) said in a monthly economic assessment report.
"Trade balance deteriorated due to soaring raw material prices and consumer prices jumped, which could put a drag on the recovery of the South Korean economy moving forward," the report said.'
Korea's consumer prices grew more than 4 percent for the first time in more than 10 years in March as energy prices shot up amid Russia's war with Ukraine.
Consumer inflation hit 4.1 percent on-year in March, accelerating from 3.7 percent in February and above the central bank's inflation target of 2 percent, according to government data.
The Bank of Korea said consumer prices are expected to be further under upward pressure coming forward, adding annual inflation growth could exceed its 2022 forecast of 3.1 percent.
Dubai crude, Korea's benchmark, came to $103.79 per barrel Wednesday, sharply up from $77.12 at the end of last year. It hit a yearly high of $127.86 per barrel on March 9. Korea depends mainly on imports for its energy needs.
Korea's exports gained 18.2 percent on-year in March to hit an all-time monthly high on brisk demand for chips and petroleum products, according to the trade ministry.
But surging energy costs also pushed up the country's imports to a record high in March. This led the country to post a trade deficit of $140 million.
The central bank and the International Monetary Fund forecast the Korean economy to grow 3 percent this year. But global credit appraisers Moody's Investors Service and Fitch Ratings lowered their economic growth forecast for Korea to 2.7 percent from 3 percent.
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