◇ Emergency martial law and presidential impeachment crisis lead to economic downturn
President Yoon Suk-yeol declared emergency martial law on the night of Dec. 3. About six hours later, at around 4:26 a.m. on the 4th, the emergency martial law was lifted. The National Assembly pushed for President Yoon's impeachment due to the declaration of martial law and the disruption of the constitution. In a second vote on Dec. 14, support came from the People Power Party, and the impeachment motion was passed. The domestic economy wobbled amid the year-end emergency martial law and impeachment crisis. In the stock market, foreign investors continued to sell, leading to a loss of over 100 trillion won in market capitalization just four days after the declaration of martial law. In the foreign exchange market, the won-dollar exchange rate surpassed 1450 won for the first time since the financial crisis. Business meetings with foreign companies were canceled, and the consumption stagnation intensified due to the reduced dining activities of corporations and government offices.
◇ Surging exchange rate... Uncertainty expands due to worsening domestic and international economic conditions
On Dec. 27, the won-dollar exchange rate surpassed 1480 won, marking the highest level in 15 years since the 2009 financial crisis. Analysts attribute this to the U.S. Federal Reserve's interest rate cuts and the uncertain political situation in Korea, which led to high exchange rates. Deputy Prime Minister and Minister of Strategy and Finance Choi Sang-mok noted that the reason for the rapid increase in the exchange rate was “half due to political events and the other half due to the strong dollar.” Amid the domestic political leadership being damaged by the year-end martial law and impeachment crisis, there are predictions that trade pressure from the second Trump administration will also intensify. Concerns are growing that the export growth, which has driven the Korean economy this year, may face a cliff.
◇ South Korean stock market ranks last globally except for war-torn Russia
This year's performance of the domestic stock market has been dismal. As of the 24th, the KOSPI index fell by 8%, while the KOSDAQ index dropped by 22%. In contrast to major Asian stock indices in Taiwan, Japan, and China recording double-digit growth rates, the South Korean stock index narrowly surpassed that of war-torn Russia. If the current KOSPI index persists until the end of the year, it will mark a record six consecutive months of decline, the longest slump since the global financial crisis in June-November 2008. Domestic investors have chosen to invest abroad, with U.S. stock holdings exceeding $100 billion (approximately 1.45 trillion won) for the first time.
◇ Fires at battery factories and reverse driving at City Hall station... series of accidents continue
A fire broke out at Arysell, a lithium battery company in Hwaseong, last June, killing 23 people. The worksite where the fire occurred did not have sprinklers installed. The emergency exit door was supposed to open when pushed in the direction of escape, but it actually opened in the opposite direction. Additionally, gas detection and alarm devices were not installed in areas where flammable liquids emitted vapors.
In July, a Genesis G80 driven by a man in his late 60s drove backward for about 200 meters on a one-way, four-lane road near City Hall station in Seoul before crashing onto the sidewalk. The accident resulted in eight fatalities and seven injuries. The driver claimed sudden acceleration, but CCTV and black box footage showed that neither brake lights nor turn signals were activated. An investigation of the event data recorder (EDR) indicated that the driver had applied full throttle.
◇ Summer heat waves and tropical nights, winter heavy snowfall... Records for abnormal weather are constantly being broken
This year, the Korean Peninsula suffered from abnormal weather. The average temperature nationwide during the summer months of June to August was 25.6℃, the highest since 1973. In Seoul, temperatures did not drop below 25℃ from the night of June 21. This marked the earliest occurrence of tropical nights since weather observations began in 1907. Heavy rainfall also followed. Of the total rainfall during the summer season, 78.8% (474.8 mm) concentrated during the monsoon season, the highest ratio since 1973. Additionally, heavy snowfall occurred in winter. According to the Seoul Meteorological Observatory in Jongno-gu, Seoul, the snowfall recorded at 7 a.m. on Nov. 27 was 16.5 cm, marking the highest accumulation of snow in November in 117 years since modern weather observations began in 1907.
◇ Steel and petrochemical industries struggle due to competition from China
The South Korean steel and petrochemical industries had their worst year yet due to low-cost competition from China. Chinese steel prices are about 20% cheaper than Korean steel, and with China massively expanding ethylene production—the key material for petrochemical products—supply has entered an oversupply phase. As cheap Chinese products flowed into the domestic market, the operating profits of Korean steel companies dropped by tens of percent compared to last year, and the performances of petrochemical firms also fell sharply. The government is pushing measures such as anti-dumping tariffs and business restructuring support to assist these industries.
◇ Government cuts R&D budget... Innovation momentum for startups weakened
The government's decision to cut the large-scale research and development (R&D) budget for the first time in 33 years took effect this year, resulting in most research funding at universities and government research institutions being reduced by more than 10%. As a result, some research projects were suspended, and brain drain occurred, leading to gaps in research. Science and engineering researchers expressed concerns about job security and research stress. The reduction in government R&D support has particularly impacted the startup ecosystem. The Ministry of SMEs and Startups' TIPS program, which supports promising startups with 500 million to 1.5 billion won in R&D funds, saw its budget cut by about 20%, leading to concerns over technology innovation and growth potential for promising startups.
◇ Trials and tribulations of Samsung Electronics in semiconductor preparation
Samsung Electronics is facing a severe crisis in its semiconductor (DS) division, which is considered the cornerstone of the company, particularly in the core business of memory semiconductors. It allowed SK Hynix to surpass it in DRAM front-end processes, where it had previously been over a year ahead. In the emerging high-bandwidth memory (HBM) sector, Samsung now finds itself in a position where it must catch up to competitors. The company is still struggling to secure global customers in the HBM sector, and its foundry and system LSI businesses are running at a loss, raising questions about the future direction of its business.
◇ Unresolved legislative conflicts
Conflicts between the medical community and the government intensified when the government announced a plan to increase medical school enrollments by 2,000 students annually in January. Residents collectively left hospitals, and medical students submitted leaves of absence to confront the government. Although they proposed a policy package to reform local and essential medical services to address the shortage of essential medical personnel, all efforts currently lack momentum. The management and personnel shortages at major tertiary hospitals, which play crucial roles in regional essential medical services, have deepened. Moreover, with the declaration of emergency martial law causing all policies to be stalled, it is expected that the legislative conflicts will continue into the next year.
◇ Increased distrust in online platforms due to the Tiemep incident
The failure to settle sales payments by TMON and WeMakePrice, leading to the Tiemep incident, has heightened consumer distrust in online platforms, including e-commerce. After the incident, closures began in the e-commerce industry. Following the end of operations by 1300K, both Alertz and Sajamarket displayed service termination notices on their websites. Minor enterprises and small businesses that were listed with Tiemep have been unable to receive sales payments on time, causing cash flow issues. The estimated damage from the Tiemep incident is about 1.5 trillion won, affecting over 48,000 companies. Consumer losses remain unresolved, particularly in the travel industry, where there is significant dissatisfaction with the Consumer Agency's compensation recommendations for participation.
◇ Rise in construction costs raises the sale price by 90 million won in one year
The sale price of apartments with a dedicated area of 84 square meters, commonly known as a national benchmark, has soared. According to real estate R114 and the promotional firm The PR, the average sale price of privately sold apartments across the country is recorded at 2,065,000 won per 3.3 square meters, an increase of 265,000 won (14.7%) compared to the average sale price last year of 1,800,000 won. Converted to a dedicated area of 84 square meters, this means an increase of 90,100,000 won. The primary cause for the rise in sale prices is attributed to rising construction and labor costs. The national construction cost index provided by the Korea Institute of Construction Technology was at 130.45 as of September, which is the highest level since the index was introduced on a monthly basis.
◇ North Korea's troop deployment to Ukraine... the Russia-Ukraine war escalates into an international conflict
Indicators have emerged showing that North Korean troops have been deployed to the Ukraine-Russia war and have suffered casualties. On Dec. 23 (local time), Ukrainian President Volodymyr Zelensky reported over 3,000 North Korean military casualties in southwest Russia's Kursk, nearly three times the figures released by the South Korean Joint Chiefs of Staff. Videos of soldiers believed to be North Korean troops being pursued by drones in open fields without cover and fake identification documents found on deceased individuals presumed to be North Korean soldiers were also made public. Meanwhile, the New York Times (NYT) reported, citing U.S. intelligence sources, that contrary to claims that Russia requested troop deployments from North Korea due to a shortage of manpower, the deployment of North Korean troops to Ukraine was made at North Korea's request, which Russian President Vladimir Putin immediately accepted.
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