Military tension on Korean Peninsula may have negative impact on region: S&P

SEJONG-- Tension over North Korea's recent launch of a ballistic missile with intercontinental range will likely raise the possibility of economic and financial risks in the Asia-Pacific region, a global ratings appraiser said Sunday.

"Developments in the Korean Peninsula have raised the risk of a military conflict that could have significant negative economic and financial impact across the Asia-Pacific," S&P Global Ratings said in its latest report. "Asia-Pacific sovereign credit quality faces risks from possible financial market disruptions, and political and geopolitical developments."

On July 4, North Korea launched the Hwasong-14 missile which reached an altitude of 2,802 kilometers and flew 933 km for 39 minutes. Pyongyang claimed that it has accomplished the country's first successful intercontinental ballistic missile that can target any place in the world.

The U.S. and South Korea held a joint military drill last week as a warning to the North, with two U.S. long-range strategic bombers flying over the Korean Peninsula. Also, South Korea launched its own Hyunmoo-2A ballistic missile into the East Sea in combined missile training exercise with its U.S. ally.

But S&P predicted tensions will not develop into a full-blown conflict, saying, "We still view military conflict as an unlikely scenario."

At the same time, S&P said the U.S. Fed's monetary tightening and Washington's "America First" trade policy will also weigh heavily on the East Asian countries and South Korea, which depends highly on trade.

"An abrupt change in U.S. trade policy toward the region could have significant implications for growth and confidence in East Asia," it said. "This could set back efforts to rein in financial risks in economies that have seen significant increases in leverage if export growth cannot offset slower domestic demand."

The U.S. formally notified South Korea on South Korea that it wanted to start the process of revising the free trade agreement (FTA) between the two countries, claiming that the deal has caused its massive trade deficit worth US$27 billion last year.

The Korea-U.S. FTA has been in effect since 2012 and has widely been considered a symbol of the economic partnership between the two countries. The U.S. is South Korea's second-largest trade partner, after China.

Source: Yonhap News Agency

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