Economic headwinds will buffet South Korea

Significance

Unlike during the 1997-98 Asian financial crisis, South Korea now has strong fundamentals to confront external economic and political headwinds. However, President Yoon Suk-yeol, who took office in May, is inexperienced, and may steer erratically as regards policy.

Impacts

• Joining Washington’s ‘Chip 4’ alliance, as looks inevitable, will cause ructions with Beijing, affecting supply chains and investment.
• Yoon’s deflationary 2023 budget, and proposed tax cuts, will not pass the opposition-controlled National Assembly without major amendments.
• Untimely attempts to impose excessive austerity carry both economic and political risk.