Tensions between the US and North Korea remain highly elevated.
Several provocations from the North Korean government in the form of unauthorized missile launches and the testing of a major nuclear weapon have ramped up the potential of a conflict between the states to levels not seen in two decades.
A physical engagement between the two nations still looks highly unlikely, but it is something that serious analysts and academics have started to talk about.
Clearly, the biggest and most important impact of any conflict between the US and North Korea – either nuclear or conventional – would be a catastrophic loss of life and huge human suffering.
But the economic impacts of what would most likely turn out to be a major international conflict – and most likely involve the first use of nuclear arms since the end of World War II – would be widespread.
The research house Capital Economics examined some of those potential impacts at the beginning of August, but now researchers at Oxford Economics have compiled their thoughts on any conflict into a handy table, which breaks down possible scenarios, the transmission channels of those scenarios, and their ultimate impacts on the economy, whether local or global.
The Korean Peninsula, the most likely center of a conflict involving North Korea, would bear the brunt of any economic shock, but those shocks would also affect worldwide supply chains, rippling across the globe.
“The market impact is significant. Equities fall sharply in the region, accompanied by abrupt exchange rate and bond market adjustments,” Oxford Economics’ head of macro scenarios, Jamie Thompson, and economist Oliver Salmon wrote.
“While market prices generally rebound swiftly with the resolution of conflict, the impact on activity is more persistent,” they added.
“Growth remains subdued in 2018 and 2019 – and not only for countries at the centre of the geopolitical tensions. Overall, global growth slows significantly, to an annual rate 0.4pp below baseline over this period, with emerging markets recording even larger undershoots.”
Check out Oxford’s analysis below:
- Oxford Economics