[News Issue] Concerns Over 'L-Shaped Long-Term Recession' Highlighted Amid Political Instability

Concerns are rising that the South Korean economy could fall into a trap of low growth and low inflation in the 1% range, and with an unprecedented state of emergency declared for the first time in 45 years, there are warnings that the already difficult domestic and international economic conditions could worsen further.

President Yoon Suk-yeol declared martial law. On the morning of the 4th, when martial law was lifted by the National Assembly's resolution, news related to martial law appeared on the monitors in the Hana Bank dealing room in Jung-gu, Seoul. Due to the impact of martial law, the KOSPI opened down 1.97%, and the exchange rate started at 1,418 won that day. Photo by Jo Yong-jun

After President Yoon Suk-yeol declared the state of emergency on the 3rd, the won-dollar exchange rate briefly surpassed 1,440 won, and some financial institutions suspended currency exchange services, causing confusion. The stock prices of major Korean companies listed on the New York Stock Exchange plummeted but began to recover slightly only after the National Assembly passed a resolution demanding the lifting of the emergency. Virtual assets such as Bitcoin and the domestic stock market also showed significant volatility.

The emergency was lifted after about six hours, bringing the urgent situation to a close, but the problem lies thereafter. Recently, a series of bleak economic forecasts have emerged, and the already unstable domestic political situation is adding to the uncertainty. This is why the recently released report on the 'L-shaped long-term recession' is drawing renewed attention.

In its report titled "Recent Economic Trends and Economic Assessment," the Hyundai Research Institute analyzed that if there is no momentum to stimulate domestic demand, an 'L-shaped long-term recession' characterized by a prolonged downturn could occur. The institute evaluated that the growth-driving power of exports, which has supported the Korean economy so far, is weakening, leading to an overall decline in economic vitality. It identified three major variables that will determine the future economic direction: financial market uncertainty triggered by 'Trumpnomics 2.0,' a downturn in export demand due to sluggish global market demand, and the absence of definite momentum to aid domestic demand recovery.

In particular, it pointed out concerns over a slowdown in export activity due to the potential downturn in the semiconductor cycle, South Korea's largest export item. It is also difficult to find momentum for a consumption rebound, as real purchasing power is not being supported. There are worries that the recent state of emergency could further dampen consumer sentiment. It explained that national turmoil and public anxiety could lead to a contraction in consumption, such as dining out.

The institute stated, "If risk factors materialize causing a hard landing in export activity and there is no momentum to stimulate domestic demand, the scenario of an L-shaped long-term recession characterized by a prolonged downturn is highly likely."

This content was produced with the assistance of AI translation services.