U.S. stagflation casts shadow

The U.S. economy's first-quarter growth rate hit a two-year low, sending shockwaves through the global economy. Amid recent optimism of avoiding stagflation - a scenario where the economy battles inflation alongside recession - the unexpected slowdown has reignited fears.

The U.S. Department of Commerce revealed a mere 1.6% annualized GDP growth rate for the first quarter, less than half of the previous quarter's 3.4% and significantly below the financial market's 2.4% expectations. Adding to concerns, the core Personal Consumption Expenditures (PCE) price index for the same period surged to 3.7%, surpassing projections. With persistent high inflation, the U.S. Federal Reserve may be compelled to postpone anticipated interest rate cuts, exacerbating worries of a potential economic downturn and escalating prices.

These developments could threaten the Korean economy, which has recently shown signs of recovery, fueling hopes of 'surprise growth' this year. Korea's first-quarter growth rate, reported by the Bank of Korea, stood at 1.3%, the highest over two years. However, if the U.S. and China experience economic deceleration, it could hamper Korea's export momentum, particularly as the U.S. is a key export destination, accounting for 18% of Korea's total exports in the first quarter.

While companies like SK hynix have surpassed market expectations with increased sales of High Bandwidth Memory (HBM), uncertainties loom over sustained performance. Taiwan's TSMC, a crucial supplier for U.S. semiconductor giant Nvidia, has revised its growth target downward for the year, signaling broader challenges. Additionally, Korea's export outlook in sectors including petrochemicals and steel is dimming amid China's dumping practices and oversupply.

Meanwhile, geopolitical tensions in the Middle East continue to cause oil price fluctuations, while soaring food prices remain unchecked. The construction sector is grappling with escalating costs, leading to a decline in apartment construction starts and dampening domestic demand. In light of these challenges, Deputy Prime Minister Choi Sang-mok's assertion of a 'clear green light' for growth appears premature. Caution remains imperative until concerns surrounding high interest rates, oil prices, and exchange rates are effectively addressed.