Lee Jae-myung urged to revitalize faltering economy

A merchant at a traditional market in Seoul watches TV as Lee Jae-myung takes the oath of office during the presidential inauguration, Wednesday. Yonhap

Few would disagree that Korea's economy is in deep trouble. From a sharp decline in consumer spending to soaring household debt, domestic economic indicators paint a grim future.

Externally, escalating global trade tensions, fueled by U.S. tariffs, pose a serious threat for the export-reliant economy.

Against this backdrop, Lee Jae-myung of the Democratic Party of Korea (DPK) won the presidency in Tuesday's election with 49.42 percent of the vote. His campaign centered on one promise: to prioritize economic recovery and tackle livelihood issues head-on.

On the eve of the election, he reiterated this commitment. "We will swiftly prepare a supplementary budget so that money can begin circulating through parched local economies and bring some relief to the struggling livelihoods of ordinary people."

His pledge comes at a critical moment. Korea is now staring down sub-1 percent growth this year — a level of stagnation witnessed only during major crises like the Asian financial crisis in 1997, the global financial market meltdown in 2008 and the COVID-19 pandemic in 2020.

The supplementary budget Lee proposes is expected to exceed 35 trillion won ($25.4 billion), with an emphasis on revitalizing local consumption. A key policy under discussion is the issuance of regional currencies — vouchers usable only within designated areas — to boost spending at local businesses.

The DPK hopes to pass the supplementary budget by August.

"With the economy in a slump, short-term supplementary spending measures should be the first agenda of the new administration to stimulate growth within this year," said Joo Won, director at the Hyundai Research Institute. "At this point, fiscal spending is essentially the only viable solution. Other measures may need to be put on hold."

Joo said its impact depends on how much is directed toward immediate, high-impact areas. "Support for vulnerable groups, policies that boost consumption, and investment in social overhead capital — these priorities will be critical to watch," he added.

Shin Se-don, professor emeritus at Sookmyung Women’s University, stressed the need for further livelihood support that extends beyond the supplementary budget. He recommended pairing the stimulus with a temporary cut to the value-added tax.

News of Lee Jae-myung's election win and financial market index figures are displayed on a monitoring screen at the Hana Bank dealing room in Seoul, Wednesday. Yonhap

Still, a loosening of fiscal discipline appears inevitable, as much of the proposed supplementary budget will be financed through deficit-issued bonds — a move likely to push national debt even higher. Korea’s government debt currently stands at 1,280.8 trillion won, or 48.4 percent of GDP.

Yet, some economists remain unconcerned. "Even if the debt level exceeds 50 percent of GDP, it would still be below that of many major economies, and we believe the risk remains low," said Kang Min-joo, a senior economist at ING.

What's next?

On the external front, trade strategy may soon test Lee’s economic leadership. With the U.S. preparing to reinstate tariffs after a temporary suspension ends on July 8, Korea must navigate a delicate balance in negotiations.

Exports are shrinking amid increasingly adverse conditions. Korea’s exports fell 1.3 percent year-on-year in May as shipments to the U.S. dropped more than 8 percent.

Market watchers see this as a sign that Trump-era tariffs are beginning to weigh on the country’s outbound shipments.

However, rushing to conclude a deal would be a mistake, warned Yang Jun-sok, an economics professor at Catholic University of Korea. "The U.S. economy is expected to worsen around July or August — and that’s when things could turn against Trump," he added.

There are encouraging signs as well. Lee’s election victory has helped ease market uncertainty, at least in the short term.

Both the benchmark KOSPI and the tech-heavy Kosdaq surged on Wednesday — by 2.66 percent and 1.34 percent, respectively — following the election result, reflecting investor optimism about political stability and the prospect of policies aimed at revitalizing the capital market.

"Without a sense of stability and reduced uncertainty, it’s difficult to expect a recovery in consumption and investment," said Lee Jung-hee, an economics professor at Chung-Ang University. "As long as public sentiment remains fragmented, economic activity will stay subdued."