The global economy could suffer a staggering $4 trillion hit in the first year alone if war breaks out between North and South Korea, Bloomberg analysts warned. The chances of such a conflict, while slim, have increased following Russian President Vladimir Putin‘s recent visit to North Korea and the establishment of a new defense pact.
What Happened: The visit saw Putin embracing North Korean leader Kim Jong Un and forming a new defense pact, adding another layer of complexity to the already tense global situation, which includes ongoing tensions between North and South Korea, the conflict in Ukraine and China’s threats to Taiwan, Bloomberg reported on Monday.
South Korea is a significant player in the global economy, particularly in the production of electronic components. Samsung Electronics, a top 30 global firm by market capitalization, is responsible for producing 41% of the world’s DRAM chips and 33% of NAND memory chips. These products are crucial for a range of companies, including Apple Inc. AAPL and Chinese smartphone maker Xiaomi Corp.
South Korea’s contribution to the global electronics market is substantial, accounting for 4% of all electronic components used in factories worldwide and around 40% of all memory chips. In 2022, sectors such as electronics and autos, which heavily rely on semiconductors, made up 30% of GDP in Taiwan, 11% in China, and 8% in Japan. A halt in South Korean electronics exports would therefore have a significant impact on the global economy.
According to Bloomberg Economics, a full-scale conflict could result in a 37.5% shrinkage of South Korea’s economy, a 5% blow to China’s GDP, and a 2.3% hit to the U.S. GDP. The global GDP could drop by 3.9%, with Southeast Asia, Japan, and Taiwan — all dependent on South Korea’s chips and vulnerable to maritime disruptions — taking the biggest hit.
Why It Matters: Adding to the tension, North Korea has recently accused the United States and South Korea of conducting continuous joint military drills against it, thereby crossing a “red line” toward a new nuclear war.
Furthermore, North Korea has launched approximately 500 trash-filled balloons into South Korean airspace, causing flight disruptions and a rooftop fire.
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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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