Under the impact of political turmoil, South Korean business confidence has hit its largest decline in four years.

The deterioration of confidence among South Korean companies has reached its highest level since the start of the pandemic, reflecting growing concerns about the country's economy struggling to cope with political turmoil and the tariff threats since the inauguration of President Trump. Data released by the Bank of Korea after surveying nearly 3,300 companies from December 11th to 18th showed that the comprehensive business sentiment index (CBSI) for December was 87 points, a decrease of 4.5 points from the previous month, marking the lowest level since September 2020 (83 points). Meanwhile, the outlook index for January dropped by 7.3 points to 82.4, also the lowest level since August 2020, and the largest month-on-month decrease since April 2020. Additionally, data released earlier this week showed that South Korea's consumer confidence index in December experienced the largest decline since the 2007-2008 financial crisis, and the lowest level for monthly consumer confidence since the tragic accident in October 2022 at Seoul's Litaeyeon, which resulted in the deaths of 159 people. These two surveys reflect the economic impact following the turmoil caused by the enforcement of martial law on December 3rd. This turmoil plunged South Korea into a political crisis, and the sharp drop in the exchange rate of the South Korean won against the US dollar has shaken investor confidence. Currently, President Yoon Suk-yeol is awaiting the Constitutional Court's ruling on the impeachment case passed by the National Assembly on December 14th. Indeed, prior to the economic impact of the martial law turmoil, South Korea was already facing economic challenges. With weak semiconductor demand and concerns about Trump returning to the White House and his protectionist policies, South Korea's export momentum has started to cool down. The Bank of Korea announced on Wednesday that after consecutive interest rate cuts by the end of 2024, it will further reduce the benchmark interest rate next year as part of a policy shift. Economists increasingly speculate that as the economic slowdown exceeds expectations, the Bank of Korea may accelerate its easing pace.