[Start Economy] The 'Ceremony Bill' that flew into our economy...the triangular waves that hit the domestic economy.

■ Host: anchor Lee Jung-seop, anchor Cho Ye-jin
■ Starring: Seo Eun-sook, professor of economics and finance at Sangmyung University

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information. Please specify [YTN News START] when quoting.

[Anchor]
We give you the latest economic news quickly and kindly. Start Economy, today with Seo Eun-sook, a professor of economics and finance at Sangmyung University. Welcome, professor. After the 'emergency martial law' incident, it has had a lot of impact on our economy. Because of political risks, Korea's growth outlook will now fall to the 1% level next year, and is there a prospect like this?

[Seo Eun-sook]
In fact, last month, the Bank of Korea released a revised economic forecast when it surprised the base rate in November. The economic forecast for next year is expected to be about 1.9%, down 0.2 percentage points from the announcement in August. In the meantime, the impeachment occurred. Under this impeachment, the ADB and major investment banks announced a 0.3 percentage point drop in Korea's economic growth rate next year. So, in the case of ADB, not only in Korea, but also in Asia and the Pacific region as a downside risk to growth, because of the launch of the second Trump administration, tariff hikes are expected.

That's why I'm worried about downside risks because of these policy changes. Next, geopolitical tensions continue not to ease, and this area is intensifying. Then the impact of China's real estate market slump. We believe that downside risks exist because of the impact on neighboring countries. But the important thing is that after the martial law declaration, the discount on the Korean economy, let's say we're the Korea discount. The part that loses a lot of trust from investors. The Korean discount is growing because of the fact that unexpected and unreasonable decisions are being made in Korea.

But the problem is that there are concerns about a very low growth trend from the beginning, so we believe that next year's economic outlook is getting very bad as this issue is pouring cold water on it. In fact, when the economic growth rate is below 2% and below 1%, what we can think about is that the overall vitality of the economy is falling very much. Therefore, rather than an overall economic slowdown, it can be seen that structural problems and long-term risks exist together. This is because Korea has limitations in finding new growth engines, so the existing growth engines themselves are weakening, so the growth rate is under more downward pressure.

[Anchor]
Among the various risks the professor pointed out, the second Trump administration is about to be launched. From Korea's point of view, it is a part where we have to take measures and think about it, but there are comments such as lack of economic leadership or lack of economic leadership.

[Seo Eun-sook]
Because the most important thing is that the first quarter of next year is to prepare for the second period of the Trump administration, and we need to prepare for the pressure of tariff burden or renegotiation of the FTA. Then, in the case of Korea, strategies and countermeasures should be made on how to balance diplomatically and economically due to economic conflicts between the U.S. and China. In fact, in the case of Korea, if the Trump administration puts pressure on China, we are likely to be under the same pressure. So things about that. Therefore, there may be a risk that Korea's export competitiveness may weaken due to the failure to effectively respond to the new tariff trade barriers that the United States can introduce.

In particular, as we know, the Special Act on Semiconductors has not yet passed. Next, automobiles, semiconductors, and automobiles, are major businesses of Korea's exports, and this can be very volatile depending on changes in U.S. policy. This is a time when leaders have to meet and negotiate together nationally in advance, but as it becomes impossible, Trump is concerned that the trust in Korea is likely to be greatly reduced in a way because the situation was negotiated after President Park Geun Hye was impeached and it is still happening.

[Anchor]
Anyway, Deputy Prime Minister for Economic Affairs Choi Sang-mok, I think you will be very responsible for this serious situation and your shoulders will be heavy. What notable things came out while discussing measures?

[Seo Eun-sook]
This is the second one. On the 15th, the impeachment bill was passed while presiding over the ministerial-level meeting. So I think it's being announced now because it reflects the will to minimize the negative impact on the economy. The biggest thing is that the uncertainty in the trade environment is growing so much as we just said, so we are continuing to hold meetings on how to strategize and respond to this. Then, he showed his will to expand and reorganize the related ministers' meeting to strengthen industrial competitiveness into a joint public-private meeting.

Also importantly, they are signaling that they will actively come up with support measures for the vulnerable. So, we will now use the budget passed by the National Assembly immediately at the beginning of next year, but in a way, we have announced that we will also come up with additional support measures for the vulnerable. So the most important thing is to use an all-out comprehensive response strategy to cope with external economic uncertainty.

[Anchor]
As much as I'm working hard on my feet, I hope there will be practical results. I'll keep an eye on it. There have been two impeachment decisions in the past. There were many articles comparing the situation at that time with the economic situation. I think it would be good to compare the growth rate and prices.

[Seo Eun-sook]
It's very different from then. The current economic situation is very different from the two impeachment cases, as explained earlier, but when former President Roh Moo Hyun was impeached in 2004, the Chinese economy was growing rapidly. Because one of the biggest reasons why we continue to see changes in China's economy is that China accounts for the largest portion of our export structure. So, if the Chinese economy grows rapidly or improves, the GDP growth rate and so on will increase as the proportion of exports increases, and if the Chinese economy slows down or this happens, we will be affected a lot.

So at that time, the Chinese economy was growing rapidly and the global economy was very booming. Of course, after the impeachment, there was temporary uncertainty, but the economic growth rate itself did not cause problems. When former President Park Geun Hye was impeached in 2017, the semiconductor industry was very strong and it was a global IT boom, so it was particularly affected in the early stages, but it was okay after that. As far as I know, the impeachment of former President Park Geun Hye was December 9, 2016. At that time, the growth rate was 0.8% compared to the previous quarter in the fourth quarter of 2016.

After that, in the first quarter of 2017, compared to the previous quarter, the growth rate was 1.1%, but in the case of the Yoon Suk Yeol government, the current third quarter is 0.1%. It's a very low level. Then, according to the Bank of Korea's estimate, the fourth quarter is also expected to be around 0.5%, but we all expect that this will also fall a little. In the case of inflation, it was 1.5% in the fourth quarter of 2016. This was 1.1% in the first quarter of 2017. So the inflation rate was very low.

So, for example, the Bank of Korea's use of easing monetary policy to eliminate uncertainty after impeachment was not too burdensome for prices. However, during the Yoon Suk Yeol administration, the Bank of Korea now expects 2.1% and the fourth quarter to be 1.6%, but the exchange rate is rising very much now. If the exchange rate rises very much, it acts as upward pressure on prices. So I think it'll probably go up a little more. So the bigger problem is that the situation was a little different from that of impeachment at the time, and now, as problems arose after the declaration of an emergency martial law, it has greatly lowered international trust and led investors to continue to wait and see the stock market.

So we can say that the part that has greatly damaged international trust is that we are currently in a bad situation by adding this to the long-term low-growth trend.

[Anchor]
If you look at the part to compare, I wonder what the exchange rate flow itself was like, as you mentioned earlier.

[Seo Eun-sook]
In December 2016, the impeachment motion against President Park Geun Hye was proposed and passed by the National Assembly, and the won-dollar exchange rate was about 52 won in the short term. So, as of December 9, 2016, it recorded 1165.50. But back then, it was around 1,100 won. Of course, the volatility of the exchange rate naturally appeared, but the decision to cite the impeachment was later made by the Constitutional Court, and uncertainty was resolved and the exchange rate stabilized again. Of course, December 14, 2024, is closed, so there is no official data, but the won-dollar exchange rate on Friday is 1435.5 won per dollar.

Compared to then, there is a big difference. As of December, the exchange rate usually hovers around the 1430 won range, so the exchange rate level has risen a lot compared to then. The problem is that the exchange rate has risen a lot because of impeachment, and the volatility has increased. Due to short-term uncertainty, the reason why it reached the 1,400 won range is that not only uncertainty but also global economic conditions, the trade environment, and the economic low growth trend that we discussed earlier are compounding now, and this volatility is increasing with the exchange rate already high.

[Anchor]
After the martial law crisis, the flow of the stock market is now being hit. What's the difference between past impeachment and stock market trends?

[Seo Eun-sook]
In fact, when uncertainty increases in the stock market, volatility increases dramatically. So, in December 2016, when the candlelight vigil began, the stock price continued to decline, and then when this uncertainty is eliminated, there will be an opportunity to turn back to an upward phase. So, even during the impeachment of former President Park Geun Hye in 2016, when I thought that uncertainty disappeared when the stock market turned upward. For example, on December 9, when the National Assembly passed the impeachment motion.

Then, when the Constitutional Court accepted the prosecution for impeachment. That was March 10, 2017, and then April 17, when the new presidential election schedule began. So, this was the time when there were three upward shifts. In other words, uncertainty has been removed. In this case, it's already the same as the exchange rate earlier. Before martial law was declared, there were some fundamental issues, and the stock market became very uncertain as foreign investors continued to sell semiconductors and Samsung Electronics, and the stock price was falling.

But as the impeachment process began, institutional investors bought a lot of stocks as the government introduced securities funds and things like that. Even during that period, individual investors and foreign investors remained selling. After the impeachment was passed, uncertainty was removed, so before that, of course, there were industries where foreigners took a wait-and-see approach and some turned to buying. So in the stock market, we call this valuation. I think there is a possibility that it will hit a low point in the future and go up in the future if PBR sees it as 0.8. Nevertheless, uncertainties such as the Constitutional Court's decision still remain.

So, I think there will be changes in the stock market as uncertainty grows in the process of not removing uncertainty, but basically, the stock price is going up again due to martial law. So I think it will return to stability a little bit.

[Anchor]
First of all, the impeachment bill was passed over the weekend, so we'll have to wait and see how the stock market starts today.

[Seo Eun-sook]
However, the most important thing in the stock market is the fundamentals, so companies perform poorly, but there are few cases where stock prices improve.

[Anchor]
Then, regarding the fundamentals, there is an uncertain economic situation inside and outside anyway, and there will be bigger problems in the future. What kind of things are there?

[Seo Eun-sook]
In the end, as we just said, the stock market is driven by fundamentals, and there are areas where long-term risks are increasing for the economy as a whole and then the growth engine is weakening. So it's very important to know how to get out of the low-growth trend. In fact, the indicators are not good. For example, in the case of consumer spending, we talk about household surpluses. In other words, after paying taxes and basically paying interest, it's the household surplus that subtracts consumer spending from the disposable income that's left over.

It's been decreasing since September. In other words, if this happens, consumers will have no choice but to shrink their consumption. In the investment sector, the growth rate of construction investment has continued to decline since 2022. In the case of construction investment, investment is divided into construction investment and capital investment, and in the case of construction investment, a plan was made two years ago and it goes on for several years. So I think it's going to be difficult to get better for the time being next year. In other words, domestic demand is very bad. So, the Korean discount exists in the market, so there is still uncertainty. Next, the uncertain external environment in Korea's industries, which are highly dependent on exports, is slowing down the export growth rate.

So, as we said at the beginning, we are predicting the 1% economic growth rate. There is a good chance that something about this part will still remain next year. So it's a bigger problem in the future, so how are we going to overcome this? It can be seen as a part of focusing on how to catch policies.

[Anchor]
As you said, stabilizing prices and reviving the domestic economy will be the most important, but Lee Chang-yong, governor of the Bank of Korea, is the day after tomorrow. There will be a press conference on the 18th. What are the future directions of monetary policy and what policies are likely to be announced here?

[Seo Eun-sook]
In fact, this meeting is a regular meeting held twice a year. So, what I'm most interested in is the situation where people are paying attention to what the results will come out as the foreign exchange market and stock market volatility grow after the emergency martial law. We are paying attention to the exchange rate issue, what to do with the exchange rate, and whether we can lower interest rates again while consumption is shrinking and the economy is in a very bad state. However, as I said at the beginning, the governor of the Bank of Korea also participated in how to revitalize the entire national economy, and from what was said at the time, he said he would actively do his best.

What we're going to think about is that there's some possibility of lowering interest rates early next year. However, if interest rates are lowered, the won will fall again, and the won-dollar exchange rate is likely to rise. So for the governor of the Bank of Korea, it's probably monetary policy, in other words, active fiscal spending rather than lowering the base rate. Please use a policy to expand your finances. Therefore, it is predicted that the government will ask to use government spending for the common people's finance or for the common people or for small business owners through the supplementary budget.

[Anchor]
It's a part that requires fluidity. Finally, let's look at the New York Stock Exchange schedule. You have a schedule to watch this week, right?


[Seo Eun-sook]
The most notable event is Fed's FOMC regular meeting scheduled for the 17th and 18th. At this time, the market is predicting that Fed will cut interest rates by about 100%. So I think interest rates will probably cut by 0.25 percentage points. Then, on the 16th, the S&P base rate decision and economic outlook report will be released. Then, on the 19th, the number of new weekly unemployment insurance applicants and the third quarter GDP growth rate will be announced. It will be announced. In terms of performance, Nike and FedEx are also scheduled to be announced.

[Anchor]
There are a lot of important schedules. Let's stop here. So far, I've been with Professor Seo Eun-sook. Thank you.