[Inside Chodong] Gloomy Outlook for the Korean Economy in the New Year

It has been three days since the start of the new year 2025. Normally, the atmosphere would be filled with lively energy as people exchange New Year's greetings and well-wishes, but instead, the mood is weighed down by cold and heavy sorrow. The entire country is on edge due to a major disaster that occurred again after more than two years since the Itaewon tragedy on October 29, 2022. Overseas media such as The New York Times and The Washington Post are also flooding reports, saying that a rare aviation accident has occurred amid political upheaval in Korea.

Looking back, division, conflict, irrationality, and unfairness prevailed everywhere throughout last year. Especially in politics, it was so chaotic that one could not help but sigh, "Why is shame always the burden of the people?" The climax was the martial law incident initiated by the president and the subsequent impeachment crisis.

The backward political behavior did not improve but rather worsened into more confrontation and communication breakdowns, hampering social stability and economic growth. Small and medium-sized business owners and experts met during reporting unanimously said, "There is nothing to expect at least until the first half of the year; policies are at a complete stop, and there are no positive economic factors."

The exchange rate soared to levels seen during the financial crisis. On December 30, the last trading day of the foreign exchange market last year, the won-dollar exchange rate closed at 1,472.5 won. This was the highest year-end weekly closing rate since the 1997 foreign exchange crisis. In mid-last month, the won-dollar exchange rate surpassed 1,450 won, and on the 27th, it rose intraday to 1,486.7 won. Some even express concerns that the won-dollar exchange rate of 1,500 may become the "new normal."

From a global macroeconomic perspective, the biggest variable is, of course, the United States. When President Donald Trump begins his term on the 20th of this month, several hefty bills are expected to arrive. Strong waves are approaching, including tariff increases, defense cost-sharing hikes, and potential repeal of the Inflation Reduction Act (IRA) and the CHIPS Act, which could impact related industries. Mid- to long-term investment plans in key industries led by large corporations such as semiconductors, automobiles, and secondary batteries are expected to be reduced or postponed.

The stronger U.S. protectionism and global supply chain restructuring will deal a greater blow to Korea's export-driven economy the longer the government delays strategic responses. It is a time when diplomatic capabilities must be exercised urgently, but under the "acting authority of the acting authority" system, can proper intergovernmental discussions take place?

According to an emergency survey conducted last month by the Korea Federation of SMEs targeting export SMEs, 26% of companies responded that they suffered direct or indirect damage due to domestic political uncertainty, and 64% expressed concerns about potential future damage.

Consumer sentiment has also further contracted. The Consumer Confidence Index (CCSI) for December, announced by the Bank of Korea on the 24th of last month, was 88.4, plunging 12.3 points from the previous month. This is the largest drop since March 2020 (-18.3 points) during the pandemic period.

With frozen consumer sentiment, small business owners are rapidly falling into the quagmire of closures. The delinquency rate on loans for self-employed individuals has soared to 11.55%, the highest in 11 years. According to the Korea Federation of SMEs, the Yellow Umbrella Closure Mutual Aid Fund paid out a record 1.3019 trillion won up to last month this year.

After the passage of the impeachment motion against President Yoon Seok-yeol, Choi Sang-mok, the acting Prime Minister and Minister of Strategy and Finance, who had appealed to "proceed with planned gatherings and events to support small business owners facing difficulties," had to declare Muan a special disaster area and designate the period until tomorrow as a national mourning period following the Muan International Airport disaster in Jeonnam. We sincerely hope that a turning point will come for the Korean economy this year and extend our deepest condolences to the bereaved families.