South Korea’s economy struggles to grow amid political crisis

SOUTH Korea’s economy continued to sputter last quarter, after President Yoon Suk-yeol’s short-lived declaration of martial law battered consumer confidence at a time when export growth is slowing.

Gross domestic product grew 0.1 per cent in the three months to December from the previous quarter, the Bank of Korea (BOK) said on Thursday (Jan 23). That figure missed economists’ forecast of a 0.2 per cent expansion. From a year earlier, the economy gained 1.2 per cent, less than a projection of 1.4 per cent.

For 2024 as a whole, the economy expanded 2 per cent, a slower than expected pace than an estimate of 2.1 per cent.

Yoon shocked the nation with his abrupt martial law declaration on Dec 3, a move that sent the won plunging when it had already been under pressure from Trump’s election victory. The short-lived decree ultimately led to his impeachment and the first-ever arrest of a sitting president in South Korea.

Finance Minister Choi Sang-mok is currently serving as acting president and has pledged to front-load fiscal spending to shore up consumer and business sentiment. The government has also designated a one-off holiday in late January to boost consumption.

Construction investment took a big hit, shrinking 3.2 per cent from the previous three-month period. Exports rose 0.3 per cent in real terms on technology shipments, while facilities investment advanced 1.6 per cent on spending on equipment such as chip-making machines, the report said. Private and government consumption rose 0.2 per cent and 0.5 per cent, respectively.

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The political turmoil has added to worries for the economy when South Korean businesses are already concerned that trade barriers and tariffs will be ramped up this year under the second Trump administration.

The BOK cut its projection for 2025 economic growth earlier this week and may do so again when it meets next month. The central bank held its key interest rate at 3 per cent last week as it chose to monitor the impact of two cuts late last year while hinting at a further rate reduction to come in the next three months.

A Bloomberg survey shows economists expect the rate to come down to 2.25 per cent by the end of the year. BLOOMBERG