OECD "Korea's Martial Law Declaration is a Black Swan... Growth Rate May Lower if Political Conflict and Protests Prolong"

"The declaration of martial law and the military's entry into the National Assembly was a 'Black Swan' (an unexpected crisis) event. If political conflict, protests, and strikes prolong, it could lower Korea's growth rate forecast."

Jon Pareliusson, the Korea-Sweden officer at the Organization for Economic Cooperation and Development (OECD), said in a written interview with the Korea Economic Daily on the 12th, "The economic impact of the martial law situation will depend on how quickly the political situation is resolved."

Officer Pareliusson commented on President Yoon Suk-yeol's declaration of martial law on the 3rd, saying, "It made people and financial market participants reassess some fundamental assumptions they had about Korea," and "It is not surprising that there was an immediate reaction in the currency market." He continued, "Nevertheless, the parliamentary vote and the lifting of martial law, as stipulated in the constitution, greatly helped stabilize the situation and restore trust in Korea as an open democratic country with strong political checks and balances."

He hinted that Korea's growth rate forecast could be adjusted downward depending on the duration of the aftermath of martial law. Earlier, the OECD presented Korea's economic growth rate for this year as 2.3%, down 0.2 percentage points from three months ago. Next year's growth rate was lowered by 0.1 percentage points to 2.1%. This forecast did not reflect the impact of martial law. Officer Pareliusson pointed out, "Ongoing political turmoil can negatively affect the economy in terms of uncertainty and credibility," and "If political conflict, protests, and strikes prolong, demand may shrink, and supply disruptions may occur, leading us to lower our growth rate forecast next."

However, he added, "If the political situation is resolved quickly and with full respect for democratic institutions, trust will be restored, and the direct impact of public unrest will be limited." He explained, "When the candlelight protests in 2016-2017 led to the impeachment of President Park Geun-hye, demand was suppressed for a while, but it rebounded as the situation was resolved."

Officer Pareliusson emphasized the need to respond swiftly to the rapidly changing domestic and international environment, such as the rise of protectionism. He advised, "Korea should actively work bilaterally and multilaterally to limit the impact of strengthened protectionism (due to Trump's re-election) while continuously securing and diversifying value chains." He also called for structural reforms to raise potential growth rates. He said, "Reforms to increase competition and make the labor market more inclusive and family-friendly will improve economic growth, welfare, and Korea's resilience to external shocks," adding, "This should be a top priority on the agenda of both parties."

He also advised the political sphere. He said, "Polarized politics makes it difficult to address these tasks (structural reforms)," and "Both the ruling and opposition parties can benefit from better cooperation in the future."