South Korea's central bank, the Bank of Korea, has lowered its economic growth forecasts for the last quarter of 2024 and for 2025 due to escalating political turmoil and a recent aviation disaster. The revision comes as the nation grapples with the fallout from President Yoon Suk Yeol's declaration of martial law, his subsequent arrest, and the tragic crash of a Jeju Air Boeing 737-800.
The Bank of Korea revised its growth estimate for the last quarter of 2024 from 2.2% to a range between 2.0% and 2.1%. The 2025 forecast was also adjusted downward from 1.9% to between 1.6% and 1.7%. This decision was impacted by political instability triggered by President Yoon's martial law declaration in December and his ongoing legal troubles.
"Consumption, which had shown improvement in the third quarter, appeared to weaken again in the fourth quarter," stated the Bank of Korea.
President Yoon Suk Yeol, the first sitting South Korean president to be arrested, faces charges of insurrection. His arrest followed a period of resistance and non-cooperation with investigators, leading to his detention being extended. Tensions escalated when his staunch supporters attacked a court building last Sunday as the Constitutional Court deliberates on whether to uphold Yoon's impeachment. A ruling against him would result in his formal removal from office and trigger elections within 60 days.
Yoon briefly suspended civilian rule on December 3 by deploying soldiers to parliament. However, lawmakers rejected the measure and later impeached him. A criminal investigation into insurrection charges continues, with prosecutors expected to formalize an indictment soon.
"The forecast has been revised downward to 1.6 to 1.7 per cent," announced the Bank of Korea, explaining that the adjustment stems primarily from political uncertainty dampening economic sentiment.
The Bank of Korea identified both political unrest and a catastrophic aviation incident as key factors influencing their revised projections. On December 29, a Jeju Air Boeing 737-800 crashed at Muan airport in southwestern South Korea, resulting in 179 fatalities—the deadliest aviation disaster on South Korean soil.
"This adjustment is primarily attributed to the impact of political uncertainty triggered by the declaration of martial law last December, which has dampened economic sentiment," elaborated the Bank of Korea.
"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," added the Bank of Korea.
The central bank noted that these events have led to contractions in domestic consumption and construction investment, likely causing fourth-quarter growth to fall short of previous projections made in November.
"led to contractions in domestic consumption and construction investment, likely causing the fourth-quarter growth rate to fall well below the November projection," commented the Bank of Korea.
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