Daily Management Review

Will the world economy endure a new Korean war?


05/18/2017


Rise in the price of consumer electronics, broken world trade and increase in US federal debt are some of the most important consequences of a possible war on the Korean peninsula, according to a new report from Capital Economics consulting agency.



Uri Tours
Uri Tours
The US and South Korean troops entering into an open, full-scale conflict with North Korea is the last opportunity for Washington and Seoul to restrain North Korea's nuclear programme, which, in Western opinion, poses a threat to the world community.

In the meantime, Japanese Prime Minister Shinzo Abe said in an interview that the international community must respond by acting on such actions, as isolated states continue to launch ballistic missiles that are becoming increasingly sophisticated from a technical point of view.

If military operations begin on the Korean peninsula, this, undoubtedly, will lead to turnabouts around the world, given high probability of the US’ involvement in this conflict, as well as level of economic influence of South Korea.

South Korea is the world's fourth largest producer of electronic goods by added value. The country accounts for just over 6% of global production, says Capital Economics. "Even a relatively short-term conflict will cause catastrophic damage to the economy of South Korea," the report said.

If a war with North Korea disrupt electronics production, companies will start looking for alternative suppliers. Yet, the world economy does not have enough spare capacity to compensate for the lost production of South Korea, the report explains. This means that several companies around the world will be forced to restrain production, which will lead to a sharp rise in prices for electronic goods everywhere.

More expensive goods will have an impact on developed economies. "The US spends on electronic products, including smartphones, cameras, tablets, computers, on average 1% of the amount of the consumer basket. If prices of electronic goods double, this fact will add 1 percentage point to inflation in the US", as other industrialized countries will face similar consequences. Real purchasing power of consumers will drop, and lower spending will force central banks to respond to this by raising interest rates, the company’s analysts.

"Undermining of world trade flows will be the war’s biggest consequence on the world economy due to the deep integration of South Korea's economy into regional and world supply chains", the report says.

Nine out of the ten busiest cargo ports are located in Asia, including the South Korean port city of Busan. Therefore, even those countries that are not involved in the conflict will face its influence if it becomes too dangerous to transport goods in the region.

If South Korea's GDP falls by 50% as a result of the war, this will immediately lead to a reduction in world GDP by 1 percentage point. "A prolonged war in Korea can lead to a significant increase in the US federal debt, which is 75% of GDP and is high enough even now".

However, given military superiority of Washington over Pyongyang, Capital Economics experts believe that any conflict will be relatively short: "a few months, but not years." If the US is involved in the postwar reconstruction of South Korea, this will further increase the financial burden on Washington. "If the US spends the same amount of funds for reconstruction in South Korea, as was the case with Iraq and Afghanistan, it will add an additional 30% to the debt", the report's authors warn.

source: cnbc.com






Science & Technology

Fast Company: Apple isn't the most innovative anymore

U.S. Space Program Could Be Delayed Due To SpaceX, Boeing Design Risks: Reuters

What trends will be affecting the health sector in the coming years?

Deloitte identifies main cyber threats for power industry

Zenuity To Take Self Driving Car Road Test In Sweden With Permission

Researchers: Half of Facebook users is fake

Amazon’s Ring gets in a privacy scandal

Facebook Is Creating A Stablecoin For Its WhatsApp Users

IBM offers to use the first quantum computer

Passport Numbers Of 5 Million Customers Hacked: Concedes Marriott

World Politics

World & Politics

AirHelp expects up to 33 th of cancellations and flight delays per day all over the world in 2019

Far-right and Catalonia: New elections in Spain

Trump is losing rating because of shutdown

Hanoi, Vietnam Chosen As Place For 2nd Summit Between Trump And Kim Jong-Un

US, China to hold new negotiations in Beijing

Human Rights Not To Be Dissociated From Stability, Macron Tells Sisi

Brexit Hijack Is Not The Parliament’s Right

Macedonia ignites political crisis in Greece