Park Geun-hye’s first year in office was a bumpy one, marked by disruptive political scandals, worrisome tensions in relations with North Korea, and back-tracking on key components of her signature “economic democratization” agenda that have weakened her popularity and undermined her credibility. This new year is unlikely to be any easier, even assuming the continued recovery of the economy.

Union militancy is on the rise, especially in the auto and finance sectors. And voters are expecting Park’s government to fulfill its pledge to carry out a program of corporate restructuring aimed at reducing the competitive advantages enjoyed by the country’s family owned conglomerates.

The president has already tested the faith of the electorate, and retreat on another central campaign pledge could send her approval rating plummeting. With peninsular tensions easing, she may not be able to count on a show of strength in the face of hostility from Pyongyang to bolster her public support.

Pyongyang’s adoption of a less overtly belligerent posture toward South Korea suggests that Kim Jong-un has established his international credibility to his own satisfaction. But as long as the internal workings of politics in North Korea remain shrouded in secrecy, the risk of a sudden flaring of diplomatic tensions will continue to be a fact of life for businesses operating in the south.

Bank of Korea Gov. Kim Choong-soo has expressed concern about deflation risks, but the threat is mitigated by a positive growth outlook. A strong won and lower commodity prices have held consumer price increases to less than 1 percent over the past several months, but a base effect and strengthening domestic demand (reinforced by wage increases) are forecast to push the inflation rate higher in the coming year.


The PRS Group
About The Author The PRS Group
The PRS Group is a leading global provider of political and country risk analysis and forecasts, covering 140 countries. Based on proprietary, quantitative risk models, the firm's clientele includes financial institutions, multilateral agencies, and trans-national firms.

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