알파경제 - South Korea′s GDP Most Affected by U.S.-China Demand Shocks, Bank of Korea Reports

There are import and export containers stacked at Busan Port.  (Photo = Yonhap News)

[Alpha Biz= Paul Lee] South Korea has been found to experience the largest decline in Gross Domestic Product (GDP) among surveyed countries due to demand shocks from the U.S. and China. While China's influence has diminished since the U.S.-China trade dispute in 2018 and the COVID-19 pandemic in 2020, the impact of the U.S. has increased. This analysis is based on the Bank of Korea's (BOK) newly reconstructed Global Projection Model (BOK-GPM).


On April 1, the Bank of Korea published its findings in the report "BOK Issue Note - BOK-GPM Reconstruction Results." The study examined the impact of major economies’ demand shocks, U.S. monetary policy shocks, and U.S. financial shocks on South Korea’s GDP. The results showed that demand shocks from the U.S. and China had the most significant impact, followed by emerging Asian economies, the Eurozone, and Japan. Notably, South Korea’s GDP showed the largest reaction to U.S. and Chinese demand shocks among the analyzed countries.




The effect of Chinese demand shocks has slightly declined from 2010 to 2023, whereas the influence of U.S. demand shocks has grown. 


Additionally, the impact of U.S. monetary policy shocks on South Korea has expanded compared to previous models. This is due to the global trade currency role of the U.S. dollar and financial linkages between countries through credit spreads. 

When the U.S. raises its policy interest rate, the strengthening of the dollar leads to a contraction in global trade, while rising credit spreads in the U.S. bond market deteriorate financial conditions in other countries. This mechanism has been captured more precisely in the newly reconstructed model.

알파경제 Paul Lee 특파원(hoondork1977@alphabiz.co.kr)