United States AI Investment Scale and China's Consumption Slump... Economic Variables of Three Countries Analyzed by Dr. Gwak Su-jong

An analysis has emerged stating that the causes of the crisis in the South Korean economy can only be understood by identifying the economic problems of the three countries: the United States, China, and Japan. In a recent video, Dr. Gwak Su-jong explained that to forecast the economic outlook from 2027 to 2031, one must comprehensively examine the economic situations of the United States, China, and Japan.

Uncertainty in the United States Economy: AI Investment Scale and Possibility of Interest Rate Hikes

The scale of investment in the AI industry and the direction of interest rates were cited as major variables for the United States economy. According to the video, there is an opinion that an additional investment of approximately $10.3 trillion is needed in the AI industry over the next five years, which amounts to about $2 trillion annually. Considering the scale of investment currently led by hyperscaler companies such as Microsoft, NVIDIA, and OpenAI, this is a point where companies may worry about additional investment costs.

Regarding interest rate policy, the robustness of the labor market and the sustainability of inflation were mentioned. It was pointed out that as consumer prices rise, wages rise accordingly, increasing the probability that inflation will persist. Accordingly, the necessity of interest rate hikes in October and December is being raised among officials such as Federal Reserve governors, and market predictions, citing data from CME, were also delivered, showing that the probability of an interest rate hike in October reaches 73%. Additionally, a forecast was presented that it may be difficult to lower interest rates if geopolitical factors, such as the Iran situation, are not resolved.

Risks in the Chinese Economy: Consumption Slump, Real Estate Insolvency, and Unemployment Issues

Despite the Chinese government's active efforts to foster the AI and semiconductor industries, the Chinese economy remains in a state of high internal uncertainty. While the Chinese government is fostering the semiconductor industry through subsidies, an analysis suggested that the youth unemployment rate is recorded at 18.9% statistically, though the actual perceived figure could be higher. Furthermore, it is expected to take more than five years for productivity improvements through AI to begin in earnest.

In terms of the domestic economy, the saving tendency of the Chinese people was pointed out as a problem. Even if the Chinese government releases money to stimulate the economy, there is a strong tendency for the people to save rather than consume it, making it difficult to revitalize domestic demand. This is linked to shadow banking issues coupled with the insolvency of the real estate market. It was also mentioned as a major risk that real estate-related problems represented by China Evergrande Group and Country Garden, which began in 2021, remain unresolved.

Impact of External Variables such as Exchange Rates and Oil Prices on the South Korean Economy

If interest rate hikes in the United States continue, the strength of the dollar may continue, leading to a phenomenon of a weak won where the value of the Korean won falls. This is a variable that could also affect the interest rate decisions of the Bank of Korea. Additionally, regarding the oil price issue, a forecast emerged that it will be difficult for oil prices to fall significantly until the first half of 2027, considering the replenishment of strategic reserves and the transportation/refining periods even if the Iran war ends.

Dr. Gwak Su-jong mentioned that the growth rate of the South Korean economy has fallen to the level of 1.5% to 2.0%, explaining that this is an insufficient level considering the inherent strength of the South Korean economy. In particular, he added an analysis that the low-growth trend faced by the South Korean economy since the 1998 foreign exchange crisis could share a similar context with the "Lost 30 Years" being experienced by China.