Summit Blog

08Sep2017

North Korea Threats Affecting South Korea’s Economy

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September 2017

By Selina Stoller, Summit AmeriFirst Holdings, LLC

On Monday, South Korean officials said that they had seen evidence that North Korea may be preparing another ballistic missile test.

Although South Korean investors have largely ignored the threat of war for years, some small signs of economic harm are emerging as Kim Jong Un, and his regime unnerves the world.

Last month, the South Korean central bank predicted that the economy would expand by almost 3 percent this year, but the damage has already been done to the tourism industry. Consumer confidence is wavering, and policy officials are warning that political tension between the two countries won’t be going away.

South Korean Finance Minister Kim Dong-Yeon told Bloomberg that because a “fundamental solution to the North Korea problem is difficult,” the effect on financial markets won’t be short term and could have a negative impact on the economy.

According to the Korea Tourism Organization, South Korea has seen a 40 percent decline in foreign tourists in July which is due to political tension.

The biggest loss is in visitors from China, which reflects a ban on package tours by the government in Beijing over South Korea’s decision to deploy the U.S.’s Thaad missile defense shield. Estimates by Bloomberg believe that the loss from Chinese tourists to South Korea cost $4.7 billion between March and July.

What can be expected for now is that the government in Seoul will further boost its foreign-exchange reserves to provide a measure of “self-insurance” to reduce market volatility and protect against potential shocks, according to Kwon Young-sun, senior economist at Nomura International in Hong Kong.

 

  • 8 Sep, 2017
  • Summit Alternative Investments

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