After the Dec. 3 martial law incident, it continued into the impeachment crisis, but foreigners predicted that the political situation would not affect South Korea's economic growth rate for 2025 or its national credit rating. However, they noted that it would impact investment sentiment, leading to an increase in the Korean won to U.S. dollar exchange rate (won-dollar exchange rate) and a continuation of foreign investors' selling trend.
Kim Seong-no, a Research Institute analyst at BNK Investment & Securities, noted on the 15th that this result came from analyzing the Bloomberg survey. After the Dec. 3 martial law incident, only 18% responded that they would 'change' their forecast for South Korea's economic growth rate in 2025. Meanwhile, 82% said they would 'not change' it. The expectations for South Korea's national credit rating in six months showed that 64% anticipated 'no change' while 27% expected it to 'slightly decline.'
The probability of an economic recession in South Korea over the next 12 months was assessed to be an average of 35%. Kim noted, “Given that the probability of a recession in the U.S. is also 25%, there is no need to attribute great significance to the 35% probability for South Korea's recession,” and added, “Even if there is a temporary recession, it should be considered that it results from the sluggish domestic market rather than the martial law incident.”
As of the end of the first quarter of 2025, the forecast for the won-dollar exchange rate was an average of 1,409 won. It projected a high of 1,450 won and a low of 1,350 won. Additionally, the forecast for foreign capital inflow into the South Korean market within the next six months showed that 80% expected 'net selling,' while 20% anticipated 'net buying.'
Kim remarked, “The won-dollar exchange rate is expected to be influenced by the pace of U.S. interest rate cuts, but given that foreigners are continuing to sell in the stock market, it seems likely to remain in the 1,400 won range for the time being.”
Expectations for a preemptive interest rate cut by the Bank of Korea have slightly increased. Regarding whether there will be a decision on an interest rate cut, 55% responded 'no change,' 27% said 'preemptive interest rate cut,' and 18% indicated 'expanded interest rate cut.' Kim noted, “If an additional interest rate cut is implemented at the Federal Open Market Committee (FOMC) meeting on the 18th, expectations for a cut in South Korea's benchmark interest rate in the first quarter of 2025 will also increase.”
Kim stated that political factors are not the fundamentals that drive the financial market. Historically, the influence of political situations on the financial market has been limited to short-term volatility.
Kim emphasized, “What has significantly impacted the financial market is the economic recession rather than politics,” and stated, “Given that the impact of this situation on the South Korean economy is expected to be limited, it is time to find quick recovery measures.”