Economic outlook sinks amid political uncertainty, BOK chief warns

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Economic outlook sinks amid political uncertainty, BOK chief warns

Published: 07 May. 2025, 00:00

Audio report: written by reporters, read by AI

From left: Financial Supervisory Service Gov. Lee Bok-hyun, Bank of Korea Gov. Rhee Chang-yong, former Finance Minister Choi Sang-mok and Financial Services Commission Chairman Kim Byoung-hwan converse during a meeting in Jung District, central Seoul, on April 3. [YONHAP]

Bank of Korea Gov. Rhee Chang-yong expressed concern over Korea’s deteriorating political and economic outlook during a press briefing on Monday in Milan, where he attended the Asean Plus Three finance ministers and central bank governors meeting.

“It has been an uncomfortable week trying to explain how this could happen in a country considered a developed economy,” Rhee said, referring to questions from international counterparts about Korea’s political vacuum in economic leadership. Rhee, along with the chair of the Financial Services Commission and the head of the Financial Supervisory Service, was a member of the so-called “F4” group, led by former Deputy Prime Minister for Economic Affairs Choi Sang-mok, which coordinated macroeconomic and financial policy.

Rhee warned that political uncertainty is weighing on investment and spending. “It’s not pushing us into a crisis,” he said, “but it is certainly dragging the economy down. This must be resolved quickly.”

His concerns are reflected in the numbers. In the first quarter of this year, Korea’s economy contracted 0.2 percent from the previous quarter and shrank compared to the same period a year ago. Year-on-year contraction has only occurred during major shocks: the 1997 Asian financial crisis, the 2009 global financial crisis, and the 2020 pandemic. The combination of global instability and domestic political turmoil has dampened consumer and investor sentiment.

Government spending, which could have helped buffer the downturn, has fallen short. Despite pledges for early budget execution, the government spent 116.7 trillion won ($84.4 billion) between January and February — down 10.5 trillion won from the same period last year. The budget execution rate stood at 17.3 percent, a 2.6 percentage point decline. The overall first quarter spending rate matched last year’s level at 41.7 percent, but the government’s pace has done little to revive the economy, which remains frozen amid the martial law declaration and broader unrest.

Bank of Korea Gov. Rhee Chang-yong speaks to reporters at a hotel in Milan. [YONHAP]

Economic coordination has also suffered since the resignation of Choi. Without a sitting deputy prime minister for economic affairs, interministerial coordination bodies like the Economic Ministers’ Meeting have lost momentum. The F4 group continues under the first vice minister of finance, but its influence has inevitably weakened. Until the new administration is inaugurated and Cabinet nominees pass confirmation hearings, a full policy leadership vacuum appears unavoidable.

Rhee likened the current situation to “entering a dark tunnel” — a phrase he first used after the Donald Trump administration’s sweeping tariff hikes in April. “It still feels much the same,” he said. With the presidential race underway, political leaders must take the national policy crisis seriously. Given the fragile state of Korea’s international credibility, parties should refrain from issuing campaign pledges that could impose reckless burdens on public finances.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.