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Key economic indicators in southeast Korea — covering Busan, Ulsan and South Gyeongsang Province — have deteriorated rapidly since the second quarter of this year as the impact of the Iran war took full effect, according to a new analysis.
A report released Monday by BNK Management Research Institute, a policy research arm of BNK Financial Group, found that manufacturing production in the region fell 2.1 percent year-on-year in May, dragged down by weakness in petroleum-based industries including petrochemicals, refining, and rubber and plastics. Export volume dropped 22.0 percent — the steepest decline in 64 months — while employment grew by only 6,000 jobs, constrained by losses in wholesale and retail trade, accommodation and food services, and construction.
The institute said the region's vulnerability to the war stems from what it calls a "R.I.S.K. economic structure" — one highly exposed to Middle East shocks. The four elements are: concentration of oil refining and petrochemical industries, heavy dependence on crude oil imports from the Middle East, a well-developed shipping and port sector, and concentration of key export industries.
The report projected that downward pressure on the regional economy would persist in the second half of the year. It cited the considerable time needed to restore supply chains damaged during the war, as well as high uncertainty surrounding negotiations even after a ceasefire agreement is reached.
The institute said swift support from local governments, relevant agencies and financial institutions for affected businesses and vulnerable groups is critical. It also recommended exploring a soft-landing approach — including business-transition consulting and tax support — to minimize market shocks for structurally vulnerable companies.
The report warned that the Iran war, following the global financial crisis and the COVID-19 pandemic, could further widen the growth gap between southeast Korea and the national average. Assuming the national economy grows at an average of 2 percent per year, the region would need average annual growth of 6.7 percent within five years, or 4.3 percent within 10 years, to return to the national growth trajectory.
The report also called for medium- to long-term measures to strengthen the regional economy's resilience. It recommended upgrading core industries, fostering knowledge-based services, and expanding eco-friendly and AI-driven advanced industries to boost industrial competitiveness. On the social side, it urged investment in talent development, stronger health and welfare systems, and expanded support for vulnerable groups to reinforce the social safety net.
"Southeast Korea's economy has repeatedly taken bigger hits than the national average whenever external risks arise, and has been slower to recover," said Baek Chung-ki, a senior research fellow at BNK Management Research Institute. "This is the moment for bold and innovative efforts to build an industrial base that can withstand crises and an economic structure with greater resilience."
BNK Management Research Institute is a policy research institution within BNK Financial Group that specializes in the regional economy and financial industry of southeast Korea, proposing various policies for regional growth and financial development based on in-depth analysis of local economic issues and industrial change.
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