South Korea’s central bank yesterday slashed its growth forecast for this year because of the political crisis triggered by South Korean President Yoon Suk-yeol’s declaration of martial law last month.
The move came as the government unveiled a US$250 billion support package for exporters amid worries of possible tariffs by US President Donald Trump as he returns to the White House.
“The unexpected declaration of martial law in early December, coupled with the ongoing political turmoil and the Jeju Air passenger plane disaster, significantly dampened economic sentiment,” the Bank of Korea said in a statement.
Photo: EPA-EFE
The political turmoil and plane crash “led to contractions in domestic consumption and construction investment, likely causing the fourth-quarter growth rate to fall well below the November projection,” the statement said. “Consumption, which had shown improvement in the third quarter, appeared to weaken again in the fourth quarter.”
As a result, the bank’s Monetary Policy Committee revised down its estimate for the final quarter of last year, from 2.2 percent to a range of 2.0 to 2.1 percent.
It had projected 1.9 percent growth for this year, but “the forecast has been revised downward to 1.6 to 1.7 percent,” it said.
Hours after the central bank slashed its growth forecasts, the South Korean Ministry of Finance announced a huge exporter support package in preparation for possible tariffs by Trump.
The ministry said it was allocating massive new support for the nation’s exporters, including technology giant Samsung Electronics Co and semiconductor leader SK Hynix Inc, owing to growing risks overseas.
“External uncertainties, such as the inauguration of the new US administration, pose concerns about potential adverse effects on the export front for businesses,” ministry Support Division Deputy Director Kim Dong-joon said.
In response, “the government plans to provide export financing on an unprecedented scale of 360 trillion won [US$248.1 billion] this year,” the ministry said in a statement.
In part due to the protracted political chaos, the won has fallen to record lows against the US dollar.
The ministry said that to mitigate the foreign exchange rate volatility, it would boost the budget for exchange rate fluctuation insurance.
The package includes allowing the Export-Import Bank of Korea to provide 50 trillion won over the next five years to industries such as semiconductors and batteries, “which have recently faced challenges,” the statement said.
Kim said that the government would try “to develop financial support measures to help promising industries — such as defense, nuclear energy and shipbuilding — leverage US-Korea cooperation to expand export and contract achievements.”
The benchmark KOSPI fell 0.14 percent to close at 2,520.05 after the central bank cut its growth forecasts, while the won was trading at 1,451.7 per US dollar at 3:30pm, down 6.6 won from the previous session.
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