South Korea showing tell-tale signs of terminal decline – Asia Times
South Korea is the country’s major central bank if it is experiencing a terrible 2025.
Between slowing growth, surging home loan, Chinese recession and Donald Trump’s fast-intensifying trade conflict, Bank of Korea Governor Rhee Chang-yong may be excused for wishing someone else was in his boots.
A gruesome social issue, which has made Rhee the de facto leader of the nation of 51 million people, only makes matters worse.
Yoon Suk Yeol’s impeachment on December 14 as a political reply to his ominous implementation of military rules earlier that month created the political vacuum.
As South Korea’s Supreme Court mulls Yoon’s conventional treatment from energy, Asia’s fourth-biggest business is in purgatory at the worst imaginable time.
Worldwide investors have had a hard time figuring out who is actually in charge of Seoul’s affairs, who is running the business, and whether the “lost decade” that many investors had feared for South Korea is now a foregone conclusion.
International funds score organizations are currently at a loss and are, for the time being, pulling their blows. As Fitch Ratings researcher Jeremy Zook puts it:
While Korea has sufficient additional funding and governmental buffers to deal with a period of great political volatility, persistent political gridlock could eventually lead to declines in policymaking power, economic performance, and fiscal management.
Investors are being less lenient as Kospi catalog stocks and the conquered money are being traded. In the confusion and restlessness, Seoul is confirming, day after day, why international funds much assigned a” Korea cheap” to the area.
The potential for Korea to remain blatantly uninspired in terms of technology may be the most disturbing. In a field that has outperformed all others for ten years, there are beginning to show signs of declining it competitiveness.
Korea is feeling the” China result” from both ends. China’s” Made in 2025″ it drive is gaining real grip, and China’s overcapacity is flooding Asia with low but impressive products. There is a decline in mainland desire for chips.
The recent winds that US President Donald Trump hasimposed are hardly surprising. Supply-chain doubt, also, as trade substitute relationships have Korea Inc unclear where Washington’s red ranges on business exist.
All of this is putting the central banker-turned-defacto-Korean-leader Rhee to the test as few, if any, may ever realize.
Certain, Governor of the Bank of Japan, Kazuo Ueda, has a 2025 difficult task ahead of him. Continuing to hike rates to suppress prices could tip the country’s third-biggest economy into recession. And only four months before regional elections at a time when the Liberal Democratic Party’s ruling party, led by Prime Minister Shigeru Ishiba, is losing support.
In this context, Morgan Stanley MUFG’s general Japan economist Takeshi Yamaguchi says,” we retain our see that the bank will be on hold in the near future.”
In Washington, Federal Reserve Chairman Jerome Powell faces his own Trumpian problem. It’s difficult to see the Fed giving in to Trump’s requirements for lower rates now that the price is likely to rise more and inflation is re-heating.
Emily George, former leader of the Federal Reserve’s Kansas City tree, says,” You have prices wetness on the one hand.” ” At the same time, you’re trying to look at what influence could this have on the job business, if growth begins to pull up. So it’s a difficult situation for them for certain. That is the entangled web they’re in, according to George.
Some worry the US is courting downturn as Trump, through severe political uncertainty, risks sabotaging the biggest market. Returning to the Fed’s 2 % inflation target might require tighter policy, given that Trump’s Republicans are suing for tax cuts and US unemployment is only 4.1 %. That could lead to Trump attempting to flame Powell once more.
In Seoul, while, Rhee really is the adhesive holding a big, trade-reliant business up.  ,
The BOK considerably lowers its GDP forecasts as a result of the BOK’s 25 basis point reduction to 2. 75 % on February 25. Most board members agreed that Korea is losing speed faster than expected amid weak domestic spending and international challenges.
According to the moments of the BOK gathering,” The local economy is growing more slowly than we had anticipated, and upside risks are growing from US price policies.”
More price reductions may be counterproductive at the same time. For instance, it may encourage households to up loans activity.
At the end of 2024, South Korea’s home debt-to-gross domestic product ratio was the second-highest among the main countries, at 91.7 %. Among the 38 Organization for Economic Cooperation and Development ( OECD ) countries, that is the second-highest.
Any move lower in Bloom costs risks incentivizing households to raise bill, adding to Korea’s biggest imbalances.
Nevertheless, Yoon’s December declaration of martial law has had a dramatic impact on the country. It was” Korea’s most bizarre and violent political crisis in ages,” according to Ian Bremmer, president of Eurasia Group, a risk consultancy.
But even before then, Yoon was extremely unhappy with voters for, among other things, failing to stage playing fields, address , near-record , household , debts, increase productivity, empower women or improve corporate governance.
Between Yook’s inauguration in May 2023 and his disastrous December 3 blunder, there were hardly any reformist whirlwinds. The BOK was now securely in the driver’s seat.
More and more, the central bank has taken the lead in managing what, until perhaps very recently, was one of the globe’s most open and dynamic major economies.
Rhee has been urging the government to find a way to boost fiscal stimulus and has been calling for economic reinforcements for some time.
According to Ashok Bhundia, an economist at the Institute of International Finance,” A supplementary budget is also crucial to addressing downside growth risks.” ” If the government fails to pass a supplementary budget, then a deeper rate-cutting cycle may be needed”.
Unfortunately, there were indications that Yoon’s People’s Party was trying to reinvigorate Korea’s tech industry. The next six months will be the golden age that will determine the fate of our industries, according to then-Finance Minister Choi Sang-mok, who spoke the day before Yoon blew up his legacy and Korea’s reputation.
Choi, who later replaced Yoon as premier, added that “given the current challenges, including global economic shifts under the incoming US administration, competition from emerging countries and the rapid reorganization of global supply chains,  , the role of the government must evolve from a supporter to a player working alongside businesses”.
Investors were anticipating Seoul’s intention to introduce a package of support measures for the semiconductor industry at the time. South Korea is more uncertain than most other countries regarding Trump’s tariff plans, thanks to Samsung Electronics and SK Hynix, which are world leaders in the area.
Lee Kyung-mook, co-author of ,” The Samsung Way”, notes that increasing Seoul’s commitment to research and development is “essential” given how South Korea is” sandwiched , between more developed nations” and China, which is both catching up and lowering costs.
Students of another Lee, the late Samsung Group chairman Lee Kun-hee, will be familiar with this metaphor. Lee warned in 2007 that Korea must move quickly upmarket to avoid being” sandwiched” between wealthy Japan and skepticism Chinese.
These days, Trump’s tariffs and China’s overcapacity are dimming South Korea’s outlook.
According to Evans Revere, senior fellow at the Brookings Institution, a Washington think tank, “growing strategic competition between the United States and the People’s Republic of China has ended the era in which South Korea could enjoy a robust trade relationship with China and a strong alliance with the United States.”
The China effect is already obvious. Last month, Korea’s semiconductor exports to China plunged at the same moment the Trump administration is slapping export restrictions on cutting-edge chips to Xi Jinping’s economy.
In February, South Korean exports to China and Hong Kong dropped by 31.8 % year over year. That is even worse than the January decline of 22.5 %. At the end of 2024, China welcomed about two-fifths of all Korean tech exports.
Chronic complacency is the root of the issue. Yoon is the fourth Korean leader since 2008 who took power pledging to generate more economic energy from the ground up, not just the top down.
That typically involved engaging in the” chaebol system” led by family-owned behemoths like Samsung, which contributed to Korea’s rise to the top 12 economies worldwide.  ,
The backdrop is that Korea Inc knows that so much of what it does well has been commoditized. In terms of cars, electronics, robots, ships, and popular entertainment, China and other emerging Asian powers are now competing.
Taiwan’s innovation rate is constantly improving, while startups like Indonesia and Vietnam are boosting the competitiveness of tech “unicorn” startups.
The best way for South Korea to maintain its high living standards is to innovate in ways that propel the economy upmarket even faster. In order to move Korea upmarket into higher-value sectors, Yoon and the three leaders who came before him pledged an innovative “big bang” in this regard.
Lee Myung-bak left the chaebol system without making significant changes between 2008 and 2013. Then came , Park Geun-hye, Korea’s first female president.
She boldly announced her intention to create a more” creative” economy in 2013 when she took office. Park vowed to expand tax breaks for startups, strengthen antitrust laws, and fine large corporations for stealing profits that could be used to bolster paychecks.
Park ended up going easy on the chaebols. She did indeed succeed in bringing back South Korea’s startup economy. Her efforts to increase the cash flow to entrepreneurs contributed to Korea becoming one of the top 10 incubators for tech unicorns, or businesses with market capitalizations greater than US$ 1 billion.
Moon Jae-in, Park’s successor, expanded the program from 2017 to 2022. Trouble is, chaebols continue to monopolize the financial fuel startups need to become major game-changers.
That is still Korea’s current issue. And as Yoon desperately tries to cling to power, Seoul’s political paralysis couldn’t come at a worse time for its tech-dependent economy.
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