A political turmoil triggered by President Yoon Suk Yeol’s six-hour martial law, which was followed by his impeachment by the National Assembly, has increased uncertainty in the Korean economy, said senior analysts at S&P Global Ratings and Moody’s Ratings.“As it drags on, the political crisis is weighing on the (Korea's) growth outlook,” Louis Kuijs, APAC chief economist at S&P Global Ratings, said in an email interview with the Korea Economic Daily this week.“It is hurting business and consumer confidence and there are signs inbound tourism is affected.”Anushka Shah, vice president at Moody’s Sovereign Risk Group, echoed his concerns, warning of a potential cut in Korea’s rating.“While we recognize that a strong rule of law continues to underpin swift decision-making and that all other institutional functions - including monetary and fiscal policy - remain effective (in Korea), prolonged disruption to economic activity or weakening consumer and business sentiment would be credit negative,” Shah said in an email interview.
The downside risks on the Korean economy have risen since November, said Kuijs, adding that S&P Global Ratings, however, sees no need “to change the outlook significantly.”But he warned of a fall in Korea’s potential growth rate in the mid to long term.“We expect South Korea’s potential GDP growth to average 2% in 2023-2026 and to edge down to 1.9% in 2026-2030,” said Kuijs.
EXPORT MATTERS However, S&P’s Kujis sees the incoming US administration under Donald Trump as a bigger immediate threat to the Korean economy than the political turmoil, citing “US economy and financial policy, directly and indirectly, including via its impact on China and other large economies” as the most significant risk factor for South Korea’s economy.
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