Political risks ease in South Korea but challenges remain with weak reform outlook: Fitch
Growing number of strikes from disgruntled workers pose a threat to stability.
Fitch Solutions has raised its short-term political risk index score for South Korea to 78.8 out of 100 from 76.9 previously on the back of improving social stability in the Asian economic powerhouse.
In a note dated 17 August, Fitch said better-than-expected jobs data seen in June, together with easing inflation have both helped keep social stability in the country stable, despite the growing number of peaceful demonstrations against the incumbent Yoon administration.
The social stability component, whose score went up to 80 from 72.5 previously, was the only one that saw improvement among the four sub indices. Scores for the other three, policy continuity (90.0), policymaking process (78.3), and security/external threats (66.7) components, remained unchanged.
While favourable economic data help suppress risks to social instability for now, Fitch warned of the challenges faced by the current administration considering the growing dissatisfaction among its citizens, especially from workers unhappy with their wages.
The Korean Confederation of Trade Unions held a two-week nationwide strike on 3-15 July as they called for the resignation of Korean President Yoon Suk Yeol.
Fitch said Yoon’s political agenda, with a focus on labour, pension and education reforms, has “gained little traction” after more than a year in office.
The admin’s initial proposal for a 69-hour work week from 52 hours currently has also received backlash and forced the government to rethink its strategy. Its 2.5% planned hike in minimum wage in 2024 was also the smallest hike in three years, a move that was caused by inflation woes and an ongoing economic slowdown.
“Prolonged disagreement between the two main political parties would lead to a slowdown in reforms and cause policy gridlock, which could weigh on South Korea’s investment outlook and our real GDP growth forecast,” Fitch said.