South Korea is currently grappling with severe political instability following President Yoon Suk Yeol’s controversial declaration of martial law on December 3, 2024. The unexpected move, intended to quell rising dissent against his government, triggered immediate backlash from the National Assembly, which swiftly adopted measures aimed at revoking the martial law within hours of its announcement.
The political turmoil surrounding this unprecedented situation has captured the nation’s attention, leading many to question the future of governance under Yoon’s administration. An arrest warrant was issued against him on December 31, 2024, but attempts by the Corruption Investigation Office (CIO) to execute it have been thwarted by military and police forces loyal to Yoon, signaling the seriousness of the political crisis.
Philippe Li, president of the think tank KEY, aptly described the night of December 3 as surreal. He noted, "A night of December 3, 2024, will remain in history as surreal, when President Yoon Suk Yeol declared martial law, and the National Assembly acted to have it repealed six hours later." This moment reflects deep divisions within the South Korean leadership, where legislative actions clash with executive ambitions.
While political struggles intensify, the economic ramifications are becoming increasingly evident. The uncertainty surrounding Yoon’s leadership has instigated significant fluctuations within South Korea’s financial markets, driving investors to reevaluate their positions. Companies influenced by these market shifts now face challenges, leading many foreign investors to seek refuge in more stable markets.
Reports indicate South Korea's stock market has experienced considerable declines, with the KOSPI index dropping approximately 10%. Analysts highlight concerning results, noting, “The stock market is ‘in fire red,’ reflecting investor reaction to political instability.” Many businesses on the index are presently undervalued, with two-thirds reporting price-to-book ratios (P/B) below 1.
Further compounding economic woes, the South Korean won has depreciated significantly, registering as the largest loser among Asian currencies last quarter. Anushka Shah, senior credit officer at Moody’s Ratings, warned, "A prolonged period of political conflict has impacted economic activity and led to strikes. This will adversely affect South Korea's credit rating." Shah’s insights underline the interconnectedness of political action and economic health, showcasing the stakes involved moving forward.
International geopolitical factors are also influencing South Korea's economic outlook. With the anticipated policy shifts from the incoming U.S. administration under President-elect Donald Trump, concerns rise about potential protectionist measures affecting South Korean exports, which are pivotal for the nation’s economic welfare. Soohyung Lee, from the Bank of Korea’s Monetary Policy Council, remarked, "Tariffs will exert strong pressures on export-dependent countries like Seoul.”
The viability of industrial sectors such as electric vehicle battery manufacturing could also come under threat as U.S.-China tensions intensify. This could place additional burdens on manufacturers forced to navigate high tariffs and supply chain disruptions, emphasized Mason Richey, professor at Hankuk University of Foreign Studies.
With pressures escalated by geopolitical tensions, the Bank of Korea predicts economic growth will descend below 2% for 2025 due to declining export performance and reduced consumer spending, indicative of the challenges still to be surmounted. Such forecasts amplify concerns about the stability of South Korea’s economy against the backdrop of domestic political crises.
The current combination of political unrest and economic uncertainty poses serious questions about South Korea’s future. Should both President Yoon and interim President Choi Sang-mok be removed from power without viable successors to restore order, the country will likely face compounded challenges. For now, South Koreans continue to watch closely as the situation evolves, with hopes for stability intertwined with apprehension about what lies ahead.