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The logo of the Bank of Korea is seen on the top of its building in Seoul, South Korea, March 8, 2016. — Reuters
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SEOUL: South Korea’s central bank cut its 2025 growth forecast on Monday as President Yoon Seok-yul’s martial law measures last month. Because of the political crisis created by the announcement.
The move comes as the government unveiled a $250 billion aid package for exporters, amid concerns over potential tariffs from Donald Trump as he prepares to return to the White House. Yun briefly suspended civilian rule by sending troops into parliament on December 3, but lawmakers rejected the move and later impeached the president, who now faces a criminal investigation on coup charges. are under arrest.
He initially resisted arrest and refused to cooperate with investigators. When his detention was extended, his hardline supporters stormed the court building on Sunday. “The unexpected declaration of martial law in early December, along with the ongoing political crisis and the downing of the Jeju Air passenger plane, significantly dampened economic sentiment,” the Bank of Korea (BOK) said in a statement.
A Jeju Air Boeing 737-800 crashed at Southwest Moan Airport on December 29, killing 179 people in the worst aviation accident on South Korean soil. Political turmoil and the crash “led to a contraction in domestic consumption and construction investment, causing fourth-quarter growth to come in well below November estimates”, the bank said. “Consumption, which had improved in the third quarter, again weakened in the fourth quarter,” it said.
As a result, the Bank’s Monetary Policy Committee cut its forecast for the last quarter of 2024 to 2.0-2.1 percent from 2.2 percent. It had forecast 1.9 percent growth for 2025, but “the forecast has been revised downwards to 1.6-1.7 percent”, it said.
“This adjustment is mainly attributable to the impact of political uncertainty arising from the declaration of martial law last December, which has dampened economic sentiment,” it said. “This is estimated to reduce growth by about 0.2 percentage points this year, mainly affecting domestic consumption and other sectors of domestic demand,” it added.
‘Critical Turning’
HSBC economist Jin Choi said: “It is rare for the bank to release its interim growth forecast… It reflects the BOK’s ongoing efforts to provide support for normal business from the government. “
In a meeting with state think tanks, Acting President Choi Sang-mok said that with the new US administration, South Korea is at a “crucial juncture” where “uncertainties based on campaign promises” turn into “practical policy risks”. is changing.
State think tanks expressed their concern at the inauguration of the new US administration, citing “slow domestic recovery in sectors such as construction, partly due to weak economic sentiment stemming from domestic political conditions”.
Choi also emphasized that the way South Korea “reacts in the early days of the new US administration … will serve as a golden period that will have a significant impact on the future of the country’s economy.” “
The government announced a support package for its major exporters in preparation for possible tariffs from Trump, who warned during his campaign last year that he would restore his hardball trade policy when he takes office. will
“External uncertainties, such as the inauguration of a new US administration, raise concerns about the potential negative impact on the export front for businesses,” said Kim Dong-joon, deputy director of the Finance Ministry’s Support Division.
In response, “the government plans to provide an unprecedented scale of export financing of 360 trillion won ($248.1 billion) this year”, the ministry said in a statement.
After a brief period of martial law, consumer sentiment fell to its lowest level since the Covid-19 pandemic. Even after the impeachment of the yen, the won fell against the dollar and the country’s unemployment rate recently hit its highest level since 2021.
