The death of North Korean leader Kim Jong-il may hurt South Korea's economic growth next year, as heightened geopolitical uncertainty over the Korean Peninsula adds to grim outlooks for the global economy, analysts said Tuesday.
The event should not pose a substantial downside risk to the South Korean economy, however, given the South's strong economic fundamentals, they said.
"We see this event as posing short-term downside risks to our already below-consensus 3 percent Gross Domestic Product (GDP) growth forecast for 2012," Nomura International Ltd. economist Kwon Young-sun said in a report.
The Japanese investment giant earlier projected the South Korean economy, Asia's fourth-largest, would grow 3 percent in 2012, down from this year's estimated 3.5 percent expansion, citing slowing exports and lingering global uncertainty.
The analysis follows a spate of institutions downgrading their outlooks for the local economy. Earlier this month, the Bank of Korea cut its 2011 growth estimate of the local economy to 3.8 percent from a 4.3 percent projection made in July.
The central bank also revised down its 2012 growth forecast to 3.7 percent from an earlier estimate of 4.6 percent on concerns exports may cool amid Europe's debt crisis and a global economic slowdown.
Analysts raised worries the demise of the North Korean leader may work to cool domestic demand.
"(Kim's death) may chill consumer sentiment and prod companies to reduce new facility investments," said Lee Sung-kwon, an economist at Shinhan Investment Corp.
Lee, however, said the event is unlikely to be a substantial influence on the local economy's fundamentals or growth projection.
Amid increased volatility in the financial market, there may be delays or reductions in existing investment plans as companies become more conservative over capital spending, said Kim Jin-seong, chief economist at Hanwha Securities Co.
"Overseas investors' evaluation of the relatively healthy South Korean economy and financial market may deteriorate amid lingering worries over global uncertainties and growing appetite for safer assets."
The economist, however, said increased geopolitical risk is unlikely to impact the fundamentals of the South Korean economy and sovereign rating, echoing the views of global rating agencies.
Standard & Poor's, Moody's Investors Service and Fitch Ratings, said earlier they would not adjust ratings on South Korea given its strong economic fundamentals and the soundness of its financial sector.
"We do not see much immediate impact on the economy of South Korea while political uncertainties are rising in the North. The poor health of the leader has been well known and both sides of the Korean Peninsula have been in preparation for this contingency for several years," said Goldman Sachs economist Kwon Goo-hoon.(Yonhap)
mil@yna.co.kr