South Korea’s central bank has lowered its 2025 growth forecast due to the ongoing political crisis sparked by President Yoon Suk Yeol’s declaration of martial law last month.
In December 2024, Yoon temporarily suspended civilian rule, sending soldiers to parliament. However, the measure was rejected by lawmakers, and the president was later impeached. Yoon is now under investigation for insurrection, and his detention has sparked protests. His refusal to cooperate with investigators has led to heightened political unrest.
The Bank of Korea attributed its revised growth projections to the unexpected declaration of martial law, ongoing political instability, and the tragic crash of a Jeju Air Boeing 737-800 on December 29, which resulted in the deaths of 179 people, marking South Korea’s worst aviation disaster. These events have dampened economic sentiment and contributed to a decline in domestic consumption and construction investment.
As a result, the central bank revised its growth estimate for the fourth quarter of 2024, lowering it from 2.2% to a range of 2.0-2.1%. Additionally, the bank downgraded its 2025 growth forecast from 1.9% to a range of 1.6-1.7%. The political turmoil, coupled with the aviation disaster, has been identified as the primary factors behind this adjustment, particularly affecting domestic demand and consumption.
The central bank estimates that the political crisis and other related factors could reduce the growth rate by approximately 0.2 percentage points for this year.
President Yoon is the first sitting South Korean president to be arrested, and prosecutors are preparing to formalize an indictment for insurrection. If found guilty, Yoon could face a life sentence or even the death penalty.
Yoon has refused to attend questioning regarding the criminal investigation, and the Corruption Investigation Office is considering whether to compel his attendance. Additionally, the Constitutional Court is reviewing the impeachment proceedings, and if upheld, Yoon will be formally removed from office, triggering new elections within 60 days.
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