Despite a strengthening stock market, South Korea’s economy is facing a shrinking crisis. The country’s real GDP contracted by 0.2% quarter-on-quarter in the first quarter of this year, driven by factors such as the continuous sluggishness of domestic demand, including construction investment, and weak exports. This has led to a standstill in national income growth.
In response, South Korean President Lee Jae-myung immediately announced the launch of the “Emergency Economic Inspection Task Force,” aiming to use national finance to achieve a virtuous economic cycle. However, this move has raised widespread concerns in society about fiscal sustainability and policy continuity.
Analysis of South Korea’s Economic Challenges
Political and Economic Challenges
Zhang Yugui noted that South Korea has entered a critical period to “boost the economy” after resolving its political crisis. One of the major difficulties facing President Lee Jae-myung is to repair the impact of past political turmoil on the economy and address the influence of US high tariffs on South Korea’s highly export-dependent economy. Additionally, a long-standing issue in South Korea is that despite continuous economic expansion, the sense of gain for ordinary people from economic growth is not very noticeable. Enhancing the welfare of economic growth and achieving broader coverage is an urgent problem for the new government to solve.
Stock Market Performance and Sustainability
Chen Li pointed out that the current rise in the South Korean stock market is mainly driven by expectations of reform. However, it remains uncertain whether these policies can be effectively implemented and what their actual impact will be. In the long term, global demand is slowing down, and social contradictions in South Korea are difficult to resolve. The overall market lacks appeal, making the strong performance of the stock market likely unsustainable.
Japan’s Monetary Policy Outlook
The Bank of Japan is set to hold a monetary policy meeting this week. It is expected that Japan will keep interest rates unchanged and may discuss reducing government bond purchases.
Zhang Yugui highlighted that the Bank of Japan’s regulatory capacity has remained relatively stable, with unique tool innovation capabilities in the Asia-Pacific region and globally. The fundamentals of the Japanese economy are not bad, and the sense of urgency for rate cuts is not particularly strong. However, the greatest risk for the Japanese economy is the potential for prolonged negative population growth, which could pose significant challenges to economic sustainability and vitality.
Related Topics:
