By Kwon Mee-yoo
Presidential elections have had little effect on the economy in recent Korean history and it actually slowed down the year after the last one, a study shows.
Bank of America Merrill Lynch has researched the 20-year economic history of Korea through 15 economic indicators including the gross domestic product (GDP) growth rate, private consumption expenditure, the amount of money in circulation and the inflation rate from 1992. The report mainly studied the presidential election years of 1992, 2002 and 2007 and excluded 1997, when the IMF crisis hit the nation.
According to the report released last week, the U.S. banking group did not find "strong evidence of a political-business cycle" that affects economic performance.
A political-business cycle means that the presidents change every five years and they often make populist pledges to win votes, which are bound to affect the economy.
In the United States, the stock market is bearish in the first two years of a presidential term but rebounds strongly in the latter half in general.
The study said economic signs were mixed around the time of elections in 1992, 1997 and 2002. The KOSPI and money supply went up slightly but housing prices and inflation rates tended to slow.
On a year-on-year basis, the GDP growth rate was only higher than the previous year in 2002.
Consumer prices rose in 2007, but went down in 1992 and 2002, against the observation that money released because of elections would raise prices.
The study concluded that presidential elections did not affect the economy strongly over the past 20 years and expected no particular economic shake-up due to the parliamentary election in April and the presidential vote in December.
However, the report indicated the economy has worsened in the year after presidential elections. In 2002, the government encouraged issuing credit cards to boost domestic demand but later the government tightened regulations, resulting in millions of credit delinquents. The report shows that the outbreak of the credit card crisis was postponed as expectations on the election held up the economic situation temporarily.
The bank lowered its forecast on the economic growth rate of Korea this year from 3.6 percent to 3 percent, stating reasons of low consumer spending and sluggish economic growth, which is likely to continue next year.