South Korea

Joongang Ilbo | English | News | Dec. 5, 2025 | UndeterminedEconomic Growth

South Korea is experiencing an economic slowdown that necessitates expansionary fiscal policies, but faces challenges due to a market saturated with record levels of liquidity. The country’s broad money supply (M2) reached 4.4 quadrillion won ($2.9 trillion) in September 2025, marking the largest amount on record with an 8.5 percent year-on-year increase. This liquidity surge is attributed to extra budgets during the COVID-19 pandemic, expansionary fiscal policies under the Lee Jae Myung administration, increased investment and lending, heavy stock market inflows, and a record current account surplus.

The excess liquidity has contributed to inflation risks, depreciation of the won, and a widening gap between policy rates and market rates. The won-dollar exchange rate recently approached 1,470 won per dollar and threatens to surpass 1,500 won, driven in part by increased foreign stock investments and capital shifts abroad due to tighter domestic real estate regulations. Inflationary pressures are also rising, with the expanded money supply impacting housing prices more sharply and quickly than broader inflation. Economists caution that liquidity growth complicates policymaking as its future allocation remains uncertain.

Monetary policy tools are limited in scope; the Bank of Korea cut base rates from 3.0 percent to 2.5 percent in 2025, but yields on 10-year government bonds rose, creating a disconnect between policy rates and market rates. The government’s large planned bond issuance next year further complicates the situation. Fiscal policy thus remains the primary instrument, but experts urge a focus on medium- and long-term structural reforms to address issues such as demographic change, low birthrates, and declining potential growth, to restore confidence in the won and manage inflation effectively.

Both the Bank of Korea governor and senior government officials downplay concerns that recent liquidity growth stems from current fiscal expansions, attributing it primarily to accumulated past liquidity. Additionally, part of Korea’s reported M2 growth includes investment funds like ETFs, which inflate comparative figures. Despite these reassurances, underlying economic vulnerabilities and policy challenges persist as the government navigates a high liquidity environment while attempting to stimulate growth.

Yonhap | English | News | Dec. 5, 2025 | Geopolitical Conflict and Disputes

A U.S. diplomat, Jonathan Fritz, highlighted President Donald Trump’s support for South Korea’s initiative to develop nuclear-powered, conventionally-armed submarines as a key example of enhanced bilateral cooperation to counter regional threats. This support reflects the strong and aligned partnership between Seoul and Washington, particularly regarding North Korea and broader regional security concerns. Trump’s endorsement came following his summit with South Korean President Lee Jae Myung and aligns with U.S. efforts to strengthen allied defense capabilities amid rising tensions with China.

The U.S. and South Korea have agreed to reinforce the U.S. conventional deterrence posture against all regional threats, signaling a joint focus on deterring potential Chinese aggression. Fritz emphasized the allies’ shared commitment to the complete denuclearization of North Korea, and their call for Pyongyang to comply with international obligations, including the abandonment of weapons of mass destruction and ballistic missile programs. Maritime security cooperation in the Indo-Pacific remains a priority, with both nations committed to upholding international maritime law and maintaining peace and stability throughout the region.

Additionally, Fritz underscored South Korea’s important role in President Trump’s agenda to reindustrialize America, stressing the need for continued South Korean investment in the U.S. economy. He also addressed progress on resolving visa challenges for skilled South Korean workers following a crackdown at a Korean plant in Georgia. The establishment of a Korea Investment and Trade Desk at the U.S. Embassy in Seoul aims to facilitate the specialized travel of Korean personnel to support South Korea’s manufacturing investments in the United States.

PRI "한국 지속가능성 공시 서둘러야...세부규칙보다 성공적 작동 중요"

Hankyung | Local Language | News | Dec. 5, 2025 | Regulation

The Principles for Responsible Investment (PRI), established under the United Nations in 2006, has become a leading global network for integrating environmental, social, and governance (ESG) factors into financial markets. With over 5,000 signatory organizations managing roughly $140 trillion globally, PRI has advanced responsible investment from a conceptual stage to a mainstream practice. PRI CEO David Atkin emphasizes that the focus is shifting from the necessity of ESG to how it is implemented, highlighting the importance of tailored strategies, transparent disclosure, and coherent policies to foster sustainable finance within each country’s unique institutional environment.

Atkin points out that responsible investment now addresses systemic risks rather than just individual asset risks, with a growing emphasis on acting upon sustainability outcomes such as climate change and human rights. Despite political headwinds, particularly in the U.S., sustainable investment continues to grow as investors recognize the long-term financial benefits of ESG integration. He stresses that the energy transition is driven primarily by economic incentives, with renewables now more affordable than fossil fuels, making policy clarity essential to encourage private capital to invest in sustainable projects.

In the context of Korea, Atkin urges the acceleration of sustainability disclosure implementation rather than focusing solely on detailed rules. He calls for clear policy direction, a trustworthy data environment, and market incentives to build a sustainable investment ecosystem, noting Korea’s strong technological and financial capacity as assets for leadership in the transition. The Korea Sustainability Standards Board’s work on disclosure standards aligns with international taxonomies and, if effectively implemented, could attract greater investment. He recommends a 2–3 year phased preparation for companies to adapt to new disclosure requirements, stressing that successful implementation is more important than rigid rules.

Regarding the National Pension Service, Atkin acknowledges progress in ESG integration but stresses the need for turning these initiatives into central elements of asset allocation and risk management. He highlights that stewardship codes require stronger enforcement and engagement by investors to influence corporate governance effectively. PRI aims to support Korean institutions by sharing global best practices and providing tailored educational resources through its new Pathways Program, helping members implement responsible investment with practical milestones and guidelines.