• Korea’s economy expanded twice as fast as initial government projections in the first quarter, registering 1.3 percent GDP growth. The government is expected to raise its annual growth projection from 2.2 percent to 2.5-2.8 percent.
  • President Yoon Suk-yeol’s signature policy initiatives were blocked in the National Assembly — controlled by the opposition Democratic Party (DP) — for the first two years of his five-year nonrenewable term. Yoon and his People Power Party (PPP) lost six more seats to the DP in the April general election. With the new lawmakers in office for another four years, Yoon will be constrained by the opposition until 2027, the year he leaves office.
  • Public sentiment toward Japan may be at its highest level in decades. Negative feelings toward China predominate, but the view that Seoul needs to improve ties with Beijing is gaining currency. The possibility of former U.S. President Donald Trump’s return to the White House has the public on edge about Washington’s security commitments.
  • More gridlock between the Yoon government and the National Assembly is expected. The DP will likely make governing difficult for Yoon to boost its chances in the next presidential election, which will be held in 2027. In the meantime, the government will need to find ways to induce the DP’s cooperation.
  • The Bank of Korea indicated it may cut rates in the second half of 2024 to accelerate economic growth, but it remains to be seen whether it can afford to do so. Utilities — including gas prices — may increase later in the year because they had been kept frozen leading up to the April general election. At the same time, the weak won has made imports expensive, adding inflationary pressure.
  • Facing growing competition in semiconductors and artificial intelligence, the government will be pressed to introduce additional measures of industry support, such as renewing the K-Chips Act, which will sunset at the end of the year.

Korea Market Overview and Forecast

Political Climate

Opposition To Constrain Yoon Government

President Yoon’s conservative PPP lost six parliamentary seats in the April 10 general election, securing only 108 of 300 seats. The progressive DP, on the other hand, strengthened its majority from 156 to 175 seats.

Emboldened by its victory, the DP is now talking about chairing all the legislative committees, some of which it had allowed the PPP to head before the election. Many in the business community will be closely watching who sits in and ends up leading key committees when the National Assembly convenes May 30. These include the committees of Trade, Industry, Energy, Small and Medium-Sized Enterprises and Startups; Information Technology and Telecommunication; Health and Welfare; Land and Infrastructure; and Environment and Labor.

The DP will likely initiate a series of independent counsel investigations aimed at discrediting Yoon, the PPP and the first lady. For its part, the PPP will press ahead with legal cases against DP leader Lee Jae-myung for alleged wrongdoing before he ran in the 2022 presidential election against Yoon. Although Yoon seems to acknowledge the need to reconcile with the opposition, this appears unlikely for now.

Foreign policymakers are pressed to come up with contingency plans in the event of former U.S. President Donald Trump’s return to the White House. Trump’s call for Seoul to pay five or six times its current price to station U.S. troops south of the 38th parallel has and will continue to widen public discourse on bolstering Korea’s own defense capabilities.

The Korea-Japan-China summit took place May 27. China’s premier — as opposed to its more senior-ranking president, Xi Jinping — represented his country at these gatherings. The first trilateral summit in more than four years confirmed the three countries’ shared commitment to greater business and industrial cooperation going forward.

Macroeconomic Climate

Faster Economic Growth Expected, With Lingering Inflationary Concerns

Korea’s first-quarter GDP growth of 1.3 percent exceeded expectations, with most forecasts projecting between 0.5-0.6 percent. Major global investment banks have since revised their economic outlook for Korea in 2024, predicting growth of 2.5-2.8 percent. The government is expected to change its current 2024 growth projection of 2.2 percent to 2.5-2.8 percent.

Inflation remains a significant obstacle to higher growth. In the first quarter of this year, the U.S. dollar gained about 10 percent against the Korean won, driving up import prices. Oil price hikes due to geopolitical uncertainty in the Middle East have also placed upward pressure on prices. At the same time, caps on public utilities, in place since last year, will need to be removed in the second half of the year, driving prices up further.

Investment Environment

Deregulation To Slow, Industry Support To Continue

Small and medium-sized enterprises will likely benefit from government support in the second half of 2024 after the DP-majority National Assembly convenes at the end of May. Many of the pro-business deregulations and the tax cuts that the Yoon government has proposed will not materialize. Lower-level deregulations will be implemented through executive directives, but major deregulations that require legislative action could be blocked unless DP lawmakers are sufficiently persuaded to cooperate. The DP and its progressive allies will oppose tax cuts for big corporations, financial gains and inheritance.

Support for key industries will continue with some nuance. During the parliamentary election campaign, the PPP and DP identified key industries deserving further government assistance, with bipartisan consensus on semiconductors and displays, artificial intelligence, intelligent robots, hydrogen, rechargeable batteries, future mobility and cutting-edge bio-health businesses.

The DP has emphasized renewable energy, which the Yoon government considers important but did not include in its 12 national strategic technologies list. The PPP, on the other hand, has identified next-generation nuclear power, telecommunications, aerospace and marine transportation, cybersecurity and quantum physics and computing as its top priorities.

We will continue to keep you updated on developments in Korea as they occur. If you have any comments or questions, please contact BGA Korea Managing Director B.J. Kim at bjkim@bowergroupasia.com.

Best regards,

BGA Korea Team