A full-scale conflict on the Korean Peninsula could have catastrophic human and economic consequences, potentially killing millions and costing the global economy $4 trillion in just one year, according to Bloomberg. The report highlights that the alliance between North Korean leader Kim Jong-un and Russian President Vladimir Putin, revitalized after Russia's invasion of Ukraine, adds another layer of risk to a world already grappling with aggressive ambitions from the Kremlin and threats from China towards Taiwan.
South Korea is a global leader in semiconductor production, making the probability of war low. However, should a conflict occur, the economic and human losses would be devastating. Bloomberg Economics analysts estimate that the global economy could lose 3.9% of GDP in the first year of hostilities, which is more than double the economic impact of the war in Ukraine. The halt in South Korean electronics exports alone would have a significant impact, as South Korea produces 4% of all electronic components used globally and about 40% of all memory chips. In 2022, electronics and automotive industries, which heavily rely on semiconductors, accounted for 30% of Taiwan's GDP, 11% of China's, and 8% of Japan's.
There is concern that Kim Jong-un might resort to nuclear strikes if he perceives an existential threat to his regime. A study by the Seoul Institute for Defense Analysis estimated that North Korea has about 80 to 90 nuclear warheads, sufficient to target South Korea, Japan, and even the United States.
Bloomberg Economics provided a grim outlook of the potential economic impact of a war on the Korean Peninsula within one year:
▫️South Korea's economy would be devastated, shrinking by 37.5% due to a drop in industrial production and exports.
▫️China's GDP would take a 5% hit due to the absence of South Korean semiconductors, decreased trade with the US, and disruptions in sea transportation.
▫️The US would experience a relatively smaller 2.3% drop in GDP, given its distance from the conflict and an economy dominated by services. However, chip shortages and falling markets would still pose significant challenges.
▫️Global GDP would decrease by 3.9%, with Southeast Asia, Japan, and Taiwan being the hardest hit due to their dependence on South Korean chips and vulnerabilities to disruptions in maritime shipping.
Despite these alarming projections, experts emphasize that the probability of such a conflict remains low at the moment.
