Bank of Korea Impeachment Approval Expected to Ease Financial Market Volatility
Economic Conditions Very Uncertain Unlike Past Impeachment Periods
Calls for Active Government and Political Response to Improve Economy Including Supplementary Budget
Participants are shouting slogans at a rally urging impeachment held on the 14th in front of the National Assembly in Yeouido, Seoul, where the second impeachment vote against President Yoon Suk-yeol is taking place. Photo by Heo Young-han
The Bank of Korea expects that the recent passage of the impeachment motion will reduce volatility in the domestic financial and foreign exchange markets. However, unlike the impeachment periods of past presidents when economic conditions were favorable due to China's high growth and the semiconductor boom, the current external environment is highly uncertain, so the government and political circles need to respond more actively to the economic downturn.
On the 15th, the Bank of Korea stated in its report titled "Assessment of Financial and Economic Impacts and Response Directions after Martial Law" that following the passage of the impeachment motion against President Yoon Suk-yeol in the National Assembly the previous day, predictability regarding the political process has increased, and thus volatility in the financial markets is expected to ease.
The Bank of Korea evaluated that, as the political impact on the economy was limited during the impeachment periods of former Presidents Roh Moo-hyun in 2004 and Park Geun-hye in 2016, a similar process is likely to occur this time as well. It explained that during the two previous impeachment phases, volatility in the financial and foreign exchange markets temporarily increased around the passage of the impeachment motion in the National Assembly, but the overall impact on the economy was limited.
In 2004, the stock market continued to rise backed by improved corporate earnings due to strong exports, and in 2016, the stock market experienced a long-term rise amid the global semiconductor boom. From the perspective of the real economy, although past impeachment incidents somewhat weakened consumer sentiment, the overall impact on growth rates was limited.
Looking at past impeachment cases, even if political uncertainty lasted for about 3 to 6 months, the economic impact was limited. Therefore, it is important to maintain trust that the economic system operates normally, separated from political situations, by ensuring that major financial and economic policies proceed without disruption.
However, in this impeachment phase, signs of economic sentiment contraction are appearing in the real economy, increasing the need to manage its impact.
In past impeachment phases, favorable external conditions such as China's high growth (2004) and the semiconductor boom (2016) supported growth through improved exports, but this time, difficulties in the external environment have increased due to rising uncertainty in trade conditions and intensified global competition in key industries.
A Bank of Korea official stated, "It is necessary for the ruling and opposition parties to quickly reach an agreement and implement major economic policies such as supplementary budgets to promptly demonstrate externally that our economic system is functioning normally." He added, "Along with this, it is also important to continue structural reform efforts such as capital market advancement and strengthening industrial competitiveness in response to changes in trade conditions and intensified global competition."
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