The impending economic policies anticipated to be enacted in the United States next year are already causing significant tremors in South Korea’s financial landscapeEconomic analysts are raising alarms as the South Korean won experiences a rapid decline, and the stock market faces substantial drops that far exceed those observed in other major economiesThere is a growing consensus among experts that the South Korean government must take proactive measures to establish a robust economic buffer to mitigate the potential for excessive volatility.

On November 6, the won hit a troubling milestone, reaching a precarious high of 1404 won to 1 US dollar, surpassing the psychologically significant barrier of 1400 won per dollarWhile the subsequent trading days saw the currency stabilize below this threshold, the stability was short-lived, as the long-held record was shattered once again on November 12. On November 13, the exchange rate broke through the 1410 won mark, indicating a sustained weakening of the won against the dollar.

Experts express concerns that the downward trajectory of the won is unlikely to reverse in the near termThe recent announcements made by the Republican Party during their campaign to impose tariffs ranging from 10% to 20% across all imported goods have stirred fears of inflationary repercussionsIt is anticipated that these policies will push U.S. treasury yields higher, maintaining the dollar's strength for an extended period.

The depreciation of the won has been accompanied by a noticeable decline in South Korea's stock market, which has seen a one-sided plunge from approximately 2560 points on November 6 to 2416.86 points by the weekendOn November 15, during trading hours, the index even dipped below the critical 2400-point markAnalysts believe that the proposed increase in tariffs may severely impact South Korea and other nations with trade surpluses with the U.S., prompting a capital flight back to American markets

Advertisements

Stocks of major corporations like Samsung Electronics have been heavily sold off, plummeting from 88,800 won per share in June to approximately 49,900 won on November 14—a startling drop of over 40%.

Beyond the immediate concerns, the potential for shifts in U.S. economic policy raises longer-term worries for the South Korean economyA prediction by the Korea Institute for International Economic Policy suggests that if the new U.S. administration enacts a 20% general tariff on South Korean goods, the country could see an annual export decrease to the U.S. of around $30.4 billion, with a total export decline of about $44.8 billionFurthermore, forecasts from the Korea Development Institute suggest that if the U.S. quickly implements tariff adjustments, South Korea's economic growth rate could plummet to a range of 1% to 2% next year—a stark contrast to its previous performance.

Compounding these issues, domestic demand in South Korea is showing signs of significant weakeningData from the Korean Statistical Office reveals that retail sales have been on a downward trend for ten consecutive quarters since the second quarter of 2022, marking the longest continuous decline since 1995 when records beganAdditionally, the industrial production index, which serves as an indicator of economic vitality, has shown a downward trajectory since the beginning of this year, with figures recorded at 5.9%, 4.8%, and 2.5% for the first three quarters respectively.

This lack of domestic demand has given rise to calls for the Bank of Korea to consider lowering interest ratesThe central bank cut its benchmark rate by 0.25 percentage points in October, and with the Consumer Price Index recorded below 2% for both September and October, there is speculation that further rate reductions could occur at the end of NovemberHowever, should the Federal Reserve slow its rate-cutting approach while South Korea pursues rate decreases, the interest rate discrepancy between the two countries may widen, heightening the pressures of capital outflow and currency depreciation

Advertisements

Advertisements

Advertisements

Advertisements