Seoul, South Korea – South Korea's economy has faced a significant setback, with growth falling short of expectations due to political instability and high interest rates. The Bank of Korea (BOK) reported that the country's annual economic growth rate was 2.0% in 2023, 0.2 percentage points below the forecast.
The central bank attributed the slower-than-expected growth to the political turmoil following the declaration of martial law, which dampened consumer sentiment and weakened private consumption. The BOK estimated that the political unrest shaved 0.2 percentage points off this year's growth forecast.
Construction investment also contracted by 2.7% due to high interest rates, while private consumption growth slowed to 1.1%, the lowest since 2020.
The Korean won has also been under pressure, with the BOK estimating that political uncertainty contributed to a 30-won appreciation of the currency against the US dollar. Bank Governor Lee Chang-yong stated that while various factors, such as the strength of the US dollar and the Bank of Japan's monetary policy, influenced the exchange rate, political instability played a significant role in the won's recent weakness.
Looking ahead, the BOK has lowered its forecast for 2024 economic growth to between 1.6% and 1.7%, citing ongoing political uncertainties and their negative impact on the economy.
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