While a nasty military engagement still seems rather unlikely, tensions between the U.S. and North Korea aren’t exactly easing lately. In fact, the U.N. just adopted new sanctions against the “Hermit Kingdom” this week, prompting the regime to threaten the U.S. with “the greatest pain and suffering.”
“Pain and suffering” with regard to human life, of course, tops the list of concerns, but the impact on the global economy could have dire implications, as well.
Oxford Economics put their thoughts together in one chart breaking down the possible economic scenarios should the U.S. and North Korea square off.
And it’s not pretty:
“While a military conflict on the Korean peninsula still remains highly unlikely, our modelling suggests that even a very short-lived conflict could have a material impact on growth around the world and trigger major asset price realignment,” writes Jamie Thompson, Oxford’s head of macro scenarios.
He explained that equities in the impact regions would take a big hit, accompanied by abrupt exchange rate and bond market adjustments.
“While market prices generally rebound swiftly with the resolution of conflict, the impact on activity is more persistent,” Thomson said, adding that global growth would remain subdued for years, especially in emerging markets.
But just how unlikely is some sort of military conflict between the two countries? Oxford Economics, as you can see below, believes a “benign” outcome is by far the most likely, with only a less-than-4% chance of war breaking out.
“This benign result is most likely to be achieved via a strategy of increasing economic and political pressure on North Korea,” Thompson said.