South Korea’s economy is facing headwinds following recent political turbulence caused by a brief declaration of martial law. The uncertainty has rippled through financial markets, weakened the national currency, and prompted downward revisions of growth forecasts by major financial institutions.
Market Impact
The announcement of martial law on December 3, 2024, led to a significant drop in the South Korean won, which fell to a two-year low of 1,430 won against the U.S. dollar. The Kospi, South Korea’s benchmark stock index, dropped 1.78%, while the secondary Kosdaq hit its lowest point in four years before a slight recovery. Market analysts warn that continued political uncertainty could create a “negative cycle” affecting consumer spending and private investment.
Government Response
In an effort to stabilize the economy, Prime Minister Han Duck-soo has called for the swift approval of the national budget, arguing that timely execution of public spending is essential for economic recovery. Finance Minister Choi Sang-mok echoed these sentiments, emphasizing that maintaining South Korea’s creditworthiness is a top priority. The government has pledged to increase engagement with international credit rating agencies and hold briefings for overseas investors to prevent further volatility.
Economic Outlook
The Bank of Korea has reduced its GDP growth forecast for 2025 to 1.9%, down from previous estimates. Investment banks like Citigroup, UBS, and Nomura have also revised their growth outlooks, with some predicting GDP growth as low as 1.6% for 2025. Economic uncertainties related to U.S. President-elect Donald Trump’s proposed tariff hikes and China’s growing competitiveness have compounded these challenges.
The South Korean government faces a critical task: regaining investor confidence and stabilizing financial markets. How it navigates this period of political and economic uncertainty will likely shape the nation’s growth trajectory over the next several years.