South Korea: Victory for Yoon signals domestic and foreign policy shifts

Yoon Suk-yeol of the conservative People Power Party was elected as South Korea’s new president on March 9 in a closely contested presidential race. Yoon will serve a single presidential term of five years, starting in May. The margin of victory was slim, with Yoon garnering 48.6% of the votes, only 0.8 percentage points more than his rival Lee Jae-myung of the Democratic Party. However, with the National Assembly (South Korea’s parliament) in the control of the Democratic Party until 2024, we think Yoon will face legislative hurdles when pushing through some of his economic and foreign policy agendas in the first two years of his presidency.

What you will learn:

• While we expect more business-friendly policies from Yoon’s administration, such as deregulation, it will likely take time for their impact to become more visible. It may also be hard to wean the economy off fiscal support, given near-term and structural growth challenges.
• We still expect South Korea’s fiscal balance to improve gradually after the large stimulus support in 2020, although it will remain in deficit over the medium term due to rising spending needs on social welfare and healthcare amid an ageing population. 
• Yoon plans to strengthen South Korea’s alliance with the US and Japan, while adopting a tougher foreign policy stance towards North Korea and China. Given its large trade exposure to China, any weakening of relations with Beijing could add growth risks for South Korea in the next few years.