NABO Global Economic Trends & Issues (No. 2)

Published on June 20, 2025
Published by Economic AnalysisCoordination Division

■ Trends: Global Economic Headwinds: Trade Conflicts and Geopolitical Risks
   Recently, in the global economic landscape, major economies have been slowing. Uncertainty is mounting amid escalating trade tensions driven by U.S. tariff policies and growing geopolitical risks, including the ongoing conflict between Israel and Iran.
   The “International Financial Markets Trends” section, as of the end of May, notes the following developments. In the bond market, government bond yields in major economies rose from the previous month, driven by concerns over fiscal deficits, government debt burden, and the downgrade of the U.S. sovereign credit rating. In the stock market, indices in advanced economies climbed as easing trade tensions, supported by progress in tariff negotiations, boosted investor sentiment. Emerging market indices also rose, aided by a weaker U.S. dollar and capital flows to emerging economies. Meanwhile, the U.S. dollar continued its downward trend amid concerns over a slowing economy and the credit downgrade. Global commodity prices generally increased on the back of improved trade prospects, although movements varied by commodity.
   The “Advanced Economy Trends” section reports that the U.S. economy contracted at an annualized rate of 0.2% in the first quarter of 2025, driven by a slowdown in consumption and reduced public expenditures. Japan’s economy also shrank by 0.2% quarter-on-quarter in the first quarter of 2025, driven by weakening export growth and sluggish consumer sentiment. In contrast, the Eurozone experienced a modest recovery, primarily in production, although consumer demand remained weak.
   The “Emerging Economy Trends” section highlights that growth momentum has generally softened amid rising external uncertainty and slowing domestic demand. In China, recovery remains limited due to tariff-related uncertainty and weak consumer spending. Brazil and Vietnam are also experiencing slower growth, driven by weaker domestic demand and external headwinds. Meanwhile, Russia continues to grow despite the ongoing war and economic sanctions, with inflation remaining high. India, on the other hand, is sustaining its recovery, supported by robust construction and manufacturing activities, along with expanding private consumption.

■ Issue Analysis: Managing International Reserves: Lessons from Major Economies for Korea
    Increased volatility in the USD-KRW exchange rate, combined with rising global economic uncertainty driven by trade conflicts and geopolitical risks, has recently brought renewed attention to the importance of international reserves. In 2024, global international reserves reached a record high of USD 16 trillion. The composition of these reserves has been diversifying, shifting from a previous heavy concentration in foreign currency reserves and U.S. dollars to a broader mix that now includes more gold and non-traditional currencies. Since the global financial crisis, there has been a growing emphasis on stability, prompting more diversified portfolios. In light of these developments, it is essential for South Korea to manage its international reserves in a stable manner and from a mid-to-long-term perspective.