As the South Korean won sharply declines against the U.S. dollar, with the won-dollar exchange rate recently breaching the 1,460 won mark for the first time in 15 years since the global financial crisis, the country is facing a triple whammy of warning signals. Red flags are flashing simultaneously across key pillars of the Korean economy, including domestic demand, exports, and labor relations.
The Business Survey Index (BSI), a key indicator of domestic economic sentiment, recorded its steepest decline in nearly five years for January next year, marking a negative outlook for 34 consecutive months — the longest streak on record. Exports, which account for 86% of the country’s economic growth, are expected to stagnate or decline in six of the 13 major product categories.
A state-run research institute recently predicted that if the Donald Trump administration imposes higher tariffs, Korea’s exports to the U.S. could shrink by over 20 trillion won ($14 billion).
“Ahead of a second Trump administration and an ongoing political turmoil amid a presidential impeachment, the Korean economy seems to be drifting toward 2025 without a clear helm,” said an industry insider.
The Federation of Korean Industries said on Dec. 26 that the economic outlook index for January next year, based on a survey of the top 600 Korean companies by sales, recorded the largest drop in five years. The BSI index for January fell to 84.6, down 12.7 points from the previous month’s 97.3, marking the sharpest fall since April 2020, when it fell by 25.1 points. A BSI reading below 100 indicates a negative month-over-month economic outlook. The index has remained below the benchmark 100 for 34 consecutive months since April 2022, the longest period since the survey began in January 1975.
“Retailers are concerned that the slump in domestic demand is unlikely to recover in the new year,” said an official from the Korea Chamber of Commerce and Industry.
Labor relations, often seen as the “Achilles’ heel” of the Korean economy, are also showing signs of strain. A survey by the Korea Enterprises Federation found that 69.3% of its 150 member companies expect labor relations to worsen next year. This growing concern stems from fears of escalating labor-management conflicts as companies navigate restructuring pressures, combined with the Korean Confederation of Trade Unions’ recent decision to call for a large-scale political strike amid the ongoing impeachment crisis.
Exports, the main driver of Korea’s growth amid sluggish domestic demand, are also flashing warning signs. The Korea Institute for Industrial Economics and Trade estimated that if Trump’s proposed universal tariffs of 10-20% on all imports and additional tariffs of 60% on Chinese goods are implemented, Korea’s exports to the U.S. could drop by 9.3% to 13.1%. Based on last year’s U.S. export value reaching $115.7 billion, this could mean losses of up to 22 trillion won.
The Korea International Trade Association forecasts stagnation or negative growth in six of South Korea’s top 13 export categories next year. Exports of petroleum products (-7.9%), petrochemicals (-0.5%), and automobiles (-1.9%) are expected to contract.
“The real risk is not just reduced exports but the potential acceleration of companies relocating production bases overseas,” said Kim Jung-hyun, a senior researcher at the Korea Institute of Industrial Economics and Trade.
