South Korea's economic growth is forecast to weaken if the Iraq crisis rapidly worsens, a report showed Sunday, raising concerns the geopolitical risk may burden Asia's fourth-largest economy, which is already struggling to prop up tepid consumption.
The country's gross domestic product (GDP) may fall as much as 0.08 percentage point this year if the ongoing insurgency worsens to the level in 2008 when Iran threatened to seal off the Strait of Hormuz, according to the report by the Hyundai Research Institute.
In such a scenario, oil prices are forecast to surge about 30 percent in the next six months, increasing South Korea's inflation by 0.42 percentage point, it added.
If the Iraqi situation develops into a regional crisis, South Korea's GDP is likely to slip 0.03 percentage point, while oil prices would rise about 10 percent over a three-month period and inflation would grow an additional 0.14 percentage point.
"With the fallout from the Sewol ferry disaster expected to continue into the second half, the government should prepare measures to stabilize the oil supply and boost economic growth in case the Iraq crisis worsens," the report said.
The report comes as South Korea is forecast to grow at a slower-than-expected speed this year due to a prolonged slump in private consumption.
Last month, the government trimmed its economic growth outlook to 3.7 percent from 3.9 percent. The Bank of Korea also cut its forecast to 3.8 percent from 4 percent, citing growing downside risks. (Yonhap)