South Korea: impeachments, elections and tariffs

The South Korean constitutional court’s decision to uphold the impeachment of President Yoon Suk Yeol follows his controversial declaration of martial law in December 2024 and ends his presidency less than three years into his five-year term.

“In a worst-case scenario with unsuccessful negotiations and no exemptions to the 25 per cent reciprocal tariff rate the US announced on South Korea, the loss in output could be as large as 2 per cent of GDP.”

This comes amid intensifying external headwinds, particularly following aggressive US tariffs of 25 per cent, which has heightened the urgency for policy support.

President Yoon’s impeachment initiated a snap presidential election within 60 days.  The election date has been set for 3 June 2025. The election will be conducted via a single-round plurality voting system.

The winner of the election will take power immediately, without the usual transition period in a regular election.

Who will win?

Polls suggest that Lee Jae-myung, leader of the opposition Democratic Party of Korea (DPK), is the current frontrunner to become the next President.

His prominence as the DPK leader and his performance in the 2022 presidential election, where he narrowly lost to Yoon, positions him as the likely favourite for his party’s ticket.

Lee’s victory would give his party control of both the presidency and the National Assembly, amplifying its legislative power. A DPK-led government would likely mark a shift towards a bigger role of the government in driving growth and more progressive policies, including higher welfare spending.

Martial law fiasco

Meanwhile, the ruling People Power Party (PPP) has not coalesced around a clear candidate.

Potential names include Labor Minister Kim Moon-soo, Seoul Mayor Oh Se-hoon, former party leader Han Dong-hoon and Daegu Mayor Hong Joon-pyo.

The PPP’s association with Yoon’s martial law fiasco may affect its standing.

In a recent poll, less than 40 per cent of respondents expressed support for the party.

While the April 4 court decision removed a major source of political uncertainty, economic headwinds are intensifying, particularly following aggressive US trade policy.

Tariffs and a supplementary budget?

ANZ Research estimates South Korea’s domestic value-add to US import demand, both directly through its exports to the US and indirectly through third-party markets, is equivalent to 4.7 per cent of GDP.

The situation for South Korea is fluid.

US President Donald Trump on April 9 revealed he has discussed tariffs, shipbuilding and potential energy deals in talks with South Korea's acting President Han Duck-soo.

In a worst-case scenario with unsuccessful negotiations and no exemptions to the 25 per cent reciprocal tariff rate the US announced on South Korea, the loss in output could be as large as 2 per cent of GDP.

As South Korea gears up for an election, and given the rising growth pressures, there is arguably more impetus for political parties to rally around a supplementary budget.

ANZ Research’s base case is for a supplementary budget in the range of KRW $10–20 trillion (0.4–0.8 per cent of Gross Domestic Product) ahead of the election, with the likelihood of further stimulus post-election in the event of a DPK-led government.

Central bank response?

The odds of more aggressive monetary policy support have also risen.

The combination of a weaker US Dollar and lower global oil prices bodes well for the inflation outlook and gives the Bank of Korea (BoK) more scope to prioritise growth.

Overall, while ANZ Research’s base case has been for the BoK to wait until May to deliver its next policy rate cut, the odds of an earlier move at its meeting on 17 April have risen and will increase further if there are no positive signs of progress on fiscal stimulus and-or trade relief from the US in the coming weeks.

Krystal Tan is Asia Economist, ANZ

This is a version of work originally published on ANZ Research on 4 April, 2025. Subscribers can access the research here.