Korea Economy Warned by Prolonged Middle East Conflict
The Bank of Korea (BOK) has released its August economic outlook, warning that a prolonged conflict in the Middle East could have significant consequences for South Korea's economy. According to the report, higher oil prices due to the conflict would push consumer inflation above the BOK's target of 2 percent. The bank forecasts inflation at 2.8 percent this year and 2.7 percent next year under a prolonged-stalemate scenario.
Oil prices have already surged above $100 a barrel, exceeding even the BOK's high-oil-price scenario. Brent crude reached around $107 a barrel as of Monday amid escalating tensions between the US and Iran. The BOK had forecasted an average price of $86 a barrel in the second half of this year and $74 next year.
Higher oil prices would not only increase inflation but also weigh on economic growth, according to the report. The BOK projects economic growth at 3.2 percent this year and 2.6 percent next year under a prolonged Middle East war scenario, down from its base-case forecast of 3.3 percent and 2.9 percent, respectively.