[Econ & Biz] Political instability and Trump's protectionist tariff policies: S. Korea's economic growth under threat?

The deliberation process at the Constitutional Court takes longer than expected as to the political fate of President Yoon Suk Yeol as it extends into next week.

Today, we take a look at its ramifications on the economy.

Our economics correspondent Moon Hye-ryeon joins us in the studio.

Hye-ryeon, to start off, does the current situation affect South Korea's economic growth projections for the year ahead?

As we prepare to wrap up the first quarter of the year, major institutions have come out with economic growth projections for 2025 – and thus far, the outlook looks gloomy.

Both the Bank of Korea and the state-run Korea Development Institute have revised their economic growth forecasts downward from their previous projections last November, citing weak domestic demand fueled by political uncertainty.

Domestic demand refers to the ​total ​amount ​spent on ​goods and ​services by ​people, ​companies, and the ​government – and low domestic demand can hinder economic growth.

In short, everyone is tightening their purse strings, and this was reflected in recent data on consumer sentiment and consumer spending.

Consumer sentiment, as measured by the central bank, saw its steepest drop since the COVID-19 pandemic in December with the martial law declaration and subsequent trials.

Months down the line, it has yet to recover.

So what groups in particular are being hit hard by low domestic demand?

Despite the national Seollal holiday in January, which typically boosts spending, consumer spending declined.

Rising costs of raw materials and ingredients have only exacerbated the situation, hitting small business owners – particularly restaurants – the hardest.

"If political instability drags on, it's hard to predict an economic recovery in the future. So when consumers feel uncertain, they tend to cut back on spending – one of the first things they cut is dining out."

This small restaurant, once packed at lunchtime, now sits idle.

The owner says sales have plunged since December.

"Since December, most reservations have been canceled. At first, sales dropped to about a third of previous levels, but recently, they've plunged to nearly half or even two-thirds."

And this is just one of many – according to Statistics Korea, the number of small business owners in the country fell for the first time in January since 2021, alongside a big drop in production in the dining industry.

But political instability isn't the only thing placing downward pressure on the country's economy. Tell us how this interplays with other factors.

That's right, Jung-min, another big hurdle is the new Trump administration's trade policies.

Tariffs levied at a rate of 25 percent now apply to steel and aluminum exports from South Korea to the U.S., and uncertainties surrounding more tariffs to come in April linger.

Economists warn that continued political instability can "push back" important economic decisions to be made – not just regarding domestic demand, but also in response to the new Trump administration's protectionist policies which could further strain South Korea's economy.

"The uncertainty in the economy will be significantly amplified, and as a result, economic decisions will be pushed back, likely having a considerably negative impact."

The government introduced support measures for small business owners and self-employed individuals in December last year, but announced additional measures such as expanding the issuance and usage of Onnuri gift certificates used for purchases at traditional markets last week as challenges persist.

As for trade policies, Seoul is pushing for high-level negotiations with Washington, and holding talks with firms to gather industry opinions.

However, experts say that a more proactive approach is needed as domestic and international uncertainties converge.

"We need to take a more proactive approach if there are U.S. goods or services we plan to purchase, we should buy them in advance, and companies with investment plans should consider moving them up. This could help mitigate the effects of the Trump administration's trade policies. Right now, our economy is facing even greater challenges than in the past, partly due to a lack of strong fiscal policy."

Alright, thank you for your report, Hye-ryeon.

Thank you for having me.