South Korea is facing unprecedented political unrest after President Yeon Suk-yeol declared martial law in a televised speech, sparking widespread protests in the capital, Seoul, Bloomberg reported.
In a quick vote, Parliament abolished martial law and called for the president’s resignation, adding to political uncertainty in Asia’s fourth-largest economy.
Effects on markets and currency
Despite the intervention of the South Korean Central Bank and the main democratic opposition to reassure investors, the damage has already been done, according to the agency.
Markets and the currency have gradually stabilized, but the Korean won, the worst performer in Asia this year, is facing further pressure.
Citigroup expects these unrest to add an additional burden to the country’s weak economic outlook, especially with the election of US President Donald Trump, who is more inclined toward protectionist policies.
Negative effects on trust
Analysts from Capital Economics said, “It is difficult to underestimate the impact of President Yoon Suk-yeol’s move on investor confidence in the economy and financial markets,” and they indicated in an interview with Bloomberg that the events may push consumers to reduce spending, which will deepen the economic challenges.
Bloomberg explained that Korean consumers were previously sensitive to sudden developments. In 2014, the deadly ferry disaster caused spending cuts.
In 2015, the outbreak of Middle East Respiratory Syndrome (MERS) affected economic growth. Recent events suggest similar impacts on domestic consumption may occur.
Possible scenarios
On the positive side, some analysts believe that calling new elections could lead to the opposition seizing power, pushing for more expansive fiscal policies.
Rory Green, an economist at TS Lombard, wrote that this scenario could “lead to increased government spending.”
However, Krishna Goa, head of global policy at Evercore, noted that political turmoil would likely not lead to major impacts on global supply chains.
While Hussain Malik, head of global research at JP Morgan, said, “Political uncertainty, coupled with geopolitical risks, indicates increased macroeconomic volatility and the potential for mixed outcomes.”
South Korea’s economy in numbers
- South Korea’s economy is the fourth largest in Asia, with a value of $1.7 trillion, according to World Bank data.
- The per capita gross income in South Korea reached about 35.6 thousand dollars in 2023, according to data from the International Monetary Fund.
- Last Thursday, the Bank of Korea lowered its forecast for the country’s economic growth this year to 2.2% from its previous forecast of 2.4% last August, and also lowered its forecast for next year from its previous estimate of 2.1% to 1.9%, amid slowing export growth and weak demand. Local.
- With a bleaker outlook for growth, the central bank unexpectedly cut its key interest rate by a quarter of a percentage point to 3%.
- In its latest report issued last week, the International Monetary Fund expected the Korean economy to grow by 2.2% this year and 2% in 2025.
