South Korea's Economy Shrinks 0.2% Amid Political Crisis, Trade Tensions

South Korea's economy unexpectedly shrank in the first quarter, revealing underlying weaknesses in economic activity even before the full impact of Trump's tariff measures. The Bank of Korea reported that the country's GDP contracted by 0.2% on a quarterly basis, defying economists' median forecast of a 0.1% growth. The political crisis triggered by the imposition of martial law by Yoon Suk-yeol in early December last year has severely eroded consumer confidence, resulting in a sluggish domestic demand.

The latest economic data highlights the substantial challenges faced by South Korean policymakers in maintaining economic growth. The intensifying trade tensions pose a particularly severe threat to export-oriented economies like South Korea. Earlier this week, trade data showed a significant 14.3% year-on-year decline in South Korea's exports to the U.S. during the first 20 days of April.

Construction investment decreased by 3.2%, marking the fourth consecutive quarter of decline. Bank of Korea Governor Lee Chang-yong noted last week that economic confidence is recovering slowly, with the construction sector exhibiting particular weakness. The contraction in the first quarter reflects the broader economic headwinds facing South Korea, including political instability and external trade pressures. The data indicates that domestic consumption, a key driver of economic growth, has been significantly impacted by the political unrest, further complicating efforts to stabilize the economy.