The Bank of Korea has cut its economic growth forecast for 2025 to 1.6-1.7% from 1.9% in November 2024, amid political unrest.
“ Political shocks following the sudden imposition of martial law in December and the Jeju Air plane crash have dampened domestic consumption and investment in the construction industry ,” the BOK said in a report on January 21.
The martial law declared by President Yoon Suk-yeol last month has had a direct and indirect impact on the South Korean economy, with experts estimating the total loss to be as high as 6.3 trillion won (US$4.39 billion).
According to the BoK, continued weakness in domestic demand due to political instability is the main factor causing a 0.2% decline in South Korea's growth rate in 2025. The BoK forecasts South Korea's economic growth in 2025 at 1.6-1.7%. In its economic outlook report released in November 2024 before the martial law incident occurred, the BoK predicted South Korea's growth rate in 2025 at 1.9%.
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| South Korea's economic growth will slow in 2025. Photo: William Warby |
Analysts said that with a growth rate of 1.9 percent in 2025, South Korea's real GDP would be 2.335 trillion won. If GDP growth falls 0.2 percent to 1.7 percent, real GDP would fall 4.584 trillion won to 2.330 trillion won.
The effects of martial law are also expected to affect GDP in the fourth quarter of 2024. The BoK forecasts growth in the fourth quarter of 2024 at just 0.2%, less than half of its previous forecast of 0.5%.
According to the BOK, credit card spending, which had increased 4.9 percent on-year in early December 2024, fell 0.9 percent in the last week of December and 0.8 percent from Jan. 1 to 12 this year. Consumer sentiment has weakened significantly during the year-end holiday season, typically a strong spending period for South Korean consumers, reflecting the impact of ongoing political unrest on the economy.
Construction investment has also slowed down. Apartment sales in December 2024 reached 21,000 units, down 17.2% from the plan of 25,000 units.
Many experts predict that the direct and indirect impacts of the recent political incident in South Korea may actually exceed this figure. For example, the sharp increase in the Won-USD exchange rate has limited future monetary policy. With domestic and foreign risk factors, it is difficult to accurately assess the scale of the overall economic impact. There are even concerns that political instability may become a bigger problem if not resolved quickly, and the economy may face more risks.
Source: https://congthuong.vn/bat-on-chinh-tri-tac-dong-manh-toi-tang-truong-kinh-te-han-quoc-370972.html
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