Political turmoil in South Korea hits already-slowing economy, puts damper on year-end festivities

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SEOUL: For nearly two weeks, rallies protesting South Korean President Yoon Suk Yeol’s short-lived attempt to impose martial law were staged daily on the streets of the Yeouido financial district, where the National Assembly Building is located.

As demonstrators thronged the streets, many others chose to stay away.

But even before the political turmoil that hit the country on Dec 3, food and hospitality business owners like Ju Eun-Ra said business has been poor in comparison to last year.

“Since November, our sales have dropped by tens of millions of won compared to the same time last year,” said the owner of Grill Jong-go-san in Seoul, who had been hoping to recoup some of her losses this month.

“We prepared a lot in anticipation of better year-end business, but after the state of emergency was declared on Dec 3, cancellations increased significantly.”

This comes during what is usually one of the busiest periods for South Korea, with Christmas and New Year celebrations around the corner.

It has already been a disappointing year economy-wise. The central bank governor expects South Korea’s gross domestic product (GDP) growth this year to drop to 2.1 per cent – down from an earlier forecast of 2.2 per cent.

In another blow to the country, analysts expect its economy to grow at a slower-than-expected pace in 2025 as people are spending less.

The won also dropped to its weakest level in 15 years on Thursday (Dec 19), weighed down by risk-averse sentiment after the United States Federal Reserve’s cautious stance on more interest rate cuts, as well as the political uncertainty in South Korea.

THINGS RETURNING TO NORMAL

But not all is doom and gloom.

The National Assembly voted to impeach Yoon last Saturday and called on South Koreans to move forward.

Protests on the streets have since dwindled, with restaurant owners like Ju saying many customers have since rebooked.

Following the successful impeachment vote, National Assembly Speaker Woo Won-shik told the public he hopes the end of the year “becomes a little happier” for them.

“I kindly urge you to resume any cancelled year-end gatherings. Small business owners, self-employed individuals and local economies are facing severe difficulties,” he added.

Finance Minister Choi Sang Mok made a similar plea, urging South Koreans to support small business owners.

Some people whom CNA spoke to said they have plans to do so.

One Seoul resident said he has started heading out for gatherings again.

“It doesn’t feel like it used to, but people around me are hopeful that things will return to normal soon and are starting to plan their schedules again,” he said.

Another resident said there had been a “subdued and restrained atmosphere” due to the martial law declaration, which lasted only six hours until the National Assembly voted to overturn it.

He added: “Personally, I had some year-end gatherings planned but due to this mood, some of them were cancelled, with plans to meet next year instead.”

LESS IMPACT THAN PREVIOUS IMPEACHMENT

In a recent survey, nearly half of about 500 small business owners and self-employed individuals in the food service and hospitality sectors reported losses due to the political uncertainty.

The poll was conducted by the Korea Federation of Small and Medium Enterprises last week.

However, some experts believe the recent political turmoil will have less impact on the economy compared to when former president Park Geun-hye was impeached in 2016.

“Although the economy is unstable, we have experienced that it recovers once political instability is resolved,” said Professor Jin Hyun-joung from Joongang University’s School of Economics.

“Compared to the impeachment period of former president Park Geun-hye, the recovery seems to have been quicker this time, which makes me think that consumers might have been less impacted than they were back then.”

He expects the economic shock from the political uncertainty to start easing as early as next month, but predicts that the gloomy growth outlook will persist for some time.

Global supply chain issues, US-China trade conflicts, rising inflation and other factors were already causing the economy to lose momentum, he pointed out.

“These issues have had a prolonged negative impact, and even before this (declaration of martial law), institutions like the Hyundai Research Institute and OECD (Organisation for Economic Co-operation and Development) had been lowering growth forecasts for Korea,” he added.