South Korea's economy still at crossroads year after failed martial law attempt

Seoul, Nov 30 South Korea continues to stand at a critical economic crossroads a year after an unexpected martial law bid tarnished Asia's fourth-largest economy that took decades to build, as emergency measures that helped navigate an ensuing crisis and changes in the global trade environment may begin to take a toll, experts said on Sunday.

After months of political turmoil triggered by former President Yoon Suk Yeol's short-lived martial law declaration last December and his eventual removal from office in April, the country is beginning to show signs of recovery. Yet experts caution that the economic scars from the upheaval remain amid uncertainties and structural challenges.

The abrupt martial law decree on Dec. 3, 2024, sent an immediate shockwave through the financial and foreign exchange markets, reports Yonhap news agency.

The Korean won plunged to multiyear lows against the U.S. dollar, while the benchmark Korea Composite Stock Price Index (KOSPI) tumbled toward 2,300 points.

Consumer sentiment sank, with private consumption slipping 0.1 percent in the first quarter of the year, driven largely by falling demand in service sectors, such as entertainment and hospitality.

Sweeping tariff measures introduced by U.S. President Donald Trump further strained South Korea's export-dependent economy.

Real gross domestic product (GDP), a key gauge of economic growth, contracted 0.2 percent in the first quarter, the first negative growth in nine months.

The downturn prompted major economic institutions, including the International Monetary Fund (IMF) and the Bank of Korea (BOK), to nearly halve their 2025 growth forecasts to around 0.8 percent, citing weakening consumption and persistent uncertainty surrounding U.S. trade policy.

Financial authorities have continued to reassure investors, insisting the crisis would have limited impact and that South Korea's external credibility would remain intact.

Yet, the fallout proved unavoidable, leaving lingering uncertainty that continues to weigh on the economy, even to date to some extent, experts note.

The government's fiscal response, combined with the country's deep strength in exports, has reignited momentum after President Lee Jae Myung took office in June.

The new administration quickly implemented a secondary supplementary budget, expanded public spending and introduced large-scale consumption-boosting measures.

Partly due to aggressive fiscal policies, GDP grew 1.2 percent in the third quarter from the previous quarter, marking the fastest expansion in roughly a year and a half.

Private consumption rose 1.3 percent during the July–September period, marking the strongest gain since late 2022.

Experts attribute much of the rebound to the government's "consumption coupon" program, which provided direct cash handouts -- 150,000 won (US$102) to all citizens in July, followed by 100,000 won to roughly 90 percent of the population in September.

Exports climbed 1.5 percent in the third quarter, driven by strong global demand for semiconductors and automobiles.

Semiconductor exports, in particular, surged amid booming demand for artificial intelligence (AI)-related chips, helping to restore investor confidence.

Financial markets also rebounded, with the KOSPI surging about 70 percent so far this year. driven by government-led market reform measures and optimism surrounding the AI boom.

Investor sentiment received another boost after Seoul and Washington finalised details of South Korea's $350 billion investment package in the United States, part of a broader trade agreement.

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