South Korea’s unrest casts a shadow over the economy and markets economy

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Bloomberg reported that South Korea is facing unprecedented political unrest after President Yeon Suk-yul declared martial law in a televised speech, sparking widespread protests in the capital. Sol.

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 Central Bank South Korea and the main democratic opposition to reassure investors that the damage has already been done, according to the agency.

Parliament abolished martial law and called for the president’s resignation, which increased political uncertainty in the fourth largest Asian economy (French)

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 the US President Donald Trump 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.

South Korean Won notes. The Korean Won is grappling with several economic and political challenges impacting its value. Economically, South Korea is facing inflationary pressures, driven by global supply chain disruptions and rising energy costs, which are affecting consumer prices and overall economic stability. The Bank of Korea has been adjusting interest rates to manage inflation, but these measures are also influencing economic growth and currency stability. Politically, tensions with North Korea and uncertainties in global trade, particularly with key partners like China and the United States, add to the volatility of the Won. Additionally, shifts in global investor sentiment and capital flows due to geopolitical events and monetary policy changes in major economies further impact the Won's exchange rate. These factors collectively shape the outlook for the Korean Won and the country's economic health.
Political unrest in South Korea will likely not lead to major impacts on global supply chains (Getty)

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

  • ASouth Korea’s economy The fourth largest economy in Asia, with a value of $1.7 trillion, according to data World Bank.
  • The per capita gross income in South Korea reached about $35.6 thousand in 2023, according to data 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 bleak 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.

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