The shock from the Middle East war has not broadly affected domestic industries, but it has significantly impacted the oil and chemical sectors as well as the employment market. The Bank of Korea reported that while major industries like semiconductors have managed to avoid production disruptions, employment recovery is expected to be slow, particularly in vulnerable sectors and small businesses.
On July 16, the Bank of Korea released a report titled 'Issue Analysis: Economic and Employment Conditions After the Middle East War.'
The oil and chemical industries have faced notable setbacks following the war. Disruptions in raw material supply have led to a significant decrease in production, and companies have prioritized domestic supply, resulting in reduced exports. The construction sector has also been affected, with some projects halted due to difficulties in obtaining building materials.
In contrast, the semiconductor industry has continued to perform well without production disruptions, thanks to securing alternative sources for key raw materials and utilizing existing inventory. The steel and non-ferrous metal sectors have benefited from spillover effects due to production and export disruptions in the Middle East. Notably, the region accounts for about 8-9% of global aluminum production, and the resulting supply shortages have tightened global supply, creating export opportunities and increased profitability for domestic companies.
The impact on the employment market has manifested more quickly than in the broader economy. The Bank of Korea noted that economic sentiment weakened in April, leading to a slowdown in employment in the domestic service sector. By May, rising cost pressures had shifted overall employment into a declining trend. The manufacturing, construction, and agriculture sectors have seen an expansion in job losses, while the growth in employment in the transportation sector has also significantly slowed. The analysis indicates that small businesses, which are particularly vulnerable to cost shocks, have experienced pronounced declines in employment.
The Bank of Korea anticipates that industries affected by the Middle East war will gradually recover in the second half of the year as logistics and energy infrastructure normalize. Additionally, considering the trend of strengthening defense capabilities in various countries and the competitiveness of domestic companies, sectors such as construction, defense, and shipbuilding may encounter new market expansion opportunities.
Employment is also expected to improve, supported by a reduction in geopolitical uncertainties and recovery in domestic demand driven by the semiconductor sector. However, the recovery pace is expected to be slow in vulnerable sectors like small businesses, which face ongoing challenges from poor market conditions and tight financial conditions.
The Bank of Korea stated, 'If the situation in the Middle East stabilizes, major domestic industries are expected to gradually recover alongside a reduction in supply chain risks. However, if the situation prolongs, supply chain instability may deepen, spreading negative impacts beyond the oil and chemical sectors to other industries.' It added, 'Employment is likely to improve due to reduced geopolitical uncertainties and recovery in domestic demand, but if cost pressures continue in vulnerable sectors, the recovery may be constrained.'
* This article has been translated by AI.
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