[Editor's note] By the end of 2024, martial law and impeachment proceedings led to peak political uncertainty in the country. With the inauguration of the second Trump administration on Jan. 20, 2025, global trade order is entering a new phase. The South Korean economy, dubbed the 'Year of the Ulha,' faces internal and external crises. What solutions are needed to overcome this crisis? We explore economic prospects for 2025 through the insights and recommendations of 34 domestic economic experts.
South Korea's economy is starting amid political turmoil and the complex crisis of global variables, shaking the overall stability of the economy. With the continuation of last year's martial law and the president's impeachment proceedings, investment sentiment has contracted, while concerns over strengthened protectionism and the restructuring of global supply chains are growing with the inauguration of the second Trump administration this year.
Economic experts have identified 'domestic political uncertainty' and 'Trump risk' as the greatest risks facing the South Korean economy this year, emphasizing the need for proactive measures to stabilize financial markets and discover new growth drivers. There is an urgent need for substantial changes to overcome the complex crisis by improving economic structure through regulatory easing and policy transitions.
◇ “Political uncertainty and Trump risk are 'greatest threat' factors”
According to a survey conducted by CHOSUNBIZ on the 2nd involving 34 domestic economic experts, 79.4% of respondents (multiple responses) identified 'domestic political uncertainty' as the greatest risk threatening the South Korean economy this year. Political conflicts and policy confusion continue to persist after the Dec. 3 martial law incident. Experts pointed out that political risks are shrinking investment sentiment and are linked to a decline in overall economic confidence.
Political instability is also causing the exchange rate to surge. On Dec. 27 last year, the won-dollar exchange rate hit 1,486.7 won during the trading session, marking the highest level in 15 years and 9 months since the financial crisis. There is speculation in the market that the exchange rate could surpass 1,500 won. The surge in the exchange rate can lead to increased expenses for imported raw materials, stimulating domestic prices, pressuring the profitability of corporations, and possibly adding strain to the overall economy.
The world's three major credit rating agencies, Moody's, Fitch, and S&P, are closely monitoring the political and economic situation in South Korea. Amid discussions about the possibility of a credit rating downgrade, experts emphasize that the government must demonstrate a clear policy direction and stability to maintain external credibility.
Kim Sang-hoon, co-head of research at KB Securities, said, “Volatility in the financial market increased during previous impeachment proceedings in 2004 and 2016, negatively impacting economic indicators such as domestic sentiment. Since there is a precedent for indicators returning once political issues are resolved, quickly resolving political uncertainty is important.”
Experts identified 'the intensification of U.S.-China conflicts and the potential restructuring of the global trade order following the inauguration of the Trump administration' (76.5%) as the second factor threatening the South Korean economy. The strengthening of protectionism and changes in global supply chains could significantly impact South Korea's export-dependent economic structure.
An analysis by a national Research Institute indicated that if the 'universal tariff' proposed by U.S. President-elect Donald Trump is implemented, South Korea's exports to the U.S. could decrease by up to 13.1%. The imposition of tariffs could intensify competition not only among major exporting countries but also with domestic corporations in the U.S., raising concerns about negative effects on the Korean economy such as investment outflows.
Kim Sang-bong, a professor of economics at Hansung University, explained, “If the Trump administration raises tariffs, a decline in South Korean exports is inevitable. As imports increase more than exports and the exchange rate rises, import prices could also rise, negatively impacting domestic prices and economic growth rates.”
◇ Stability of financial markets and expansion of new growth engines are key
So, how should we respond to the crisis? The government's focus for South Korea's economy this year should be on 'stabilizing interest rates and exchange rates,' according to 67.8% of respondents (multiple responses). Experts emphasized that stabilizing these factors is the top priority, as exchange rate volatility and high-interest rates worsen conditions for household debt and corporate financing.
Prolonged exchange rate volatility could lead to foreign investors withdrawing, shaking the stability of financial markets. After the martial law, foreign investors reportedly sold over 3 trillion won in domestic stocks, signaling a decline in confidence in South Korean corporations and the economy.
The government is also rolling out emergency measures. On Dec. 19 last year, foreign exchange authorities announced that the foreign exchange swap transaction limit with the National Pension Service would be expanded from $50 billion to $65 billion and extended for another year until the end of this year. The government subsequently announced additional measures to improve foreign exchange supply and demand, such as expanding bank forward exchange limits and easing foreign exchange loan regulations, demonstrating its commitment to market stabilization, but the market remains unstable.
In addition, experts stress that 'expanding new growth engines through regulatory easing' (55.9%) is essential. Discovering and fostering new growth engines can play a key role not just in revitalizing the economy, but also in laying the groundwork for long-term sustainable growth.
To this end, the government has declared a policy direction of 'dynamic economy' and expressed its determination to actively promote future industries such as semiconductors, artificial intelligence (AI), and advanced bio. The discovery of new growth engines, strengthening policy support, and restoring the nuclear power ecosystem have been presented as major tasks. However, concerns have been raised that political turmoil may undermine the execution of plans to foster new growth engines.
Kwak No-seon, a professor of economics at Sogang University, said, “Structurally, given the population and other factors, South Korea's potential growth rate is declining. Since productivity-enhancing sectors can only be software or information technology (IT), it is necessary to identify and fully support the lagging areas.”
Additionally, experts highlighted several tasks that policy authorities should focus on to manage economic risks, including expansionary fiscal policy to prevent potential economic slowdown (44.1%), strengthening social safety nets like support for vulnerable groups (32.4%), leading industrial restructuring (32.4%), curbing the increase in household debt (17.6%), and pioneering emerging export markets and supporting export corporations (17.6%).
◇ Participants in the survey
▲ Kang Min-joo, head of institutional sector at ING Bank ▲ Kang Sung-jin, professor at Korea University ▲ Ko Tae-bong, executive at iM Securities ▲ Kwak No-seon, professor at Sogang University ▲ Kim Sang-bong, professor at Hansung University ▲ Kim Sang-hoon, head of research at KB Securities ▲ Kim Sung-hyun, professor at Sungkyunkwan University ▲ Kim Seung-hyun, head of research at Yuanta Securities ▲ Kim Ji-yeon, head of forecasts at Korea Development Institute ▲ Kim Jin-il, professor at Korea University ▲ Kim Hak-kyun, head of research at Shinyoung Securities ▲ Kim Hyun-soo, head of economic policy team at Korea Chamber of Commerce and Industry ▲ Park Sun-young, professor at Dongguk University ▲ Park Hee-chan, head of research at Mirae Asset Securities ▲ Baek In-seok, senior research fellow at Capital Market Institute ▲ Seok Byung-hoon, professor at Ewha Womans University ▲ Shin Kwan-ho, professor at Korea University ▲ Woo Seok-jin, professor at Myongji University ▲ Yoo Jong-min, professor at Hongik University ▲ Yoo Jong-woo, head of research at Korea Investment & Securities ▲ Yoon Sang-ha, head of international macroeconomics at Korea Institute for International Economic Policy ▲ Lee Geun, professor at Seoul National University ▲ Lee Byung-gun, head of research at DB Financial Investment ▲ Lee Seung-woo, head of research at Eugene Investment & Securities ▲ Lee Seung-hoon, economist at Meritz Securities ▲ Lee Jong-hwa, professor at Korea University ▲ Jun Kwang-woo, chairman at Institute for Global Economics ▲ Jeong Young-sik, head of international macrofinance at Korea Institute for International Economic Policy ▲ Cho Kyoung-yub, senior research fellow at Korea Economic Research Institute ▲ Cho Jang-ok, emeritus professor at Sogang University ▲ Joo Won, head of economic research at Hyundai Research Institute ▲ Heo Jun-young, professor at Sogang University ▲ Hong Ki-seok, professor at Ewha Womans University ▲ Hwang Seung-taek, head of research at Hana Securities