South Korea’s shock GDP slump shows Abenomics has claimed its first major victim

March 26, 2013
March 26, 2013

South Korea has just posted its slowest quarterly GDP growth since the global recession.

The east Asian nation is an export-led economy. And since Japan’s new prime minister, Shinzo Abe, began his campaign to drive down the value of the yen to make Japan’s exporters more competitive, some Korean companies—especially car makers—have suffered.

Korean companies were one greatly buoyed by a strong yen. Now the situation has reversed, with the won advancing against the yen—and the South Koreans are starting to grumble.

Korean finance minister Hyun Oh-seok has called the weak yen a “flashing a red light” for Korean exporters, recommending that the issue be discussed at the G20, the finance and central banking group convened by the world’s 20 leading economies.

But so far, Seoul has resisted aggressively bashing Tokyo as a means of shifting blame for its slowdown away from the government.

Dealing with Abenomics sensibly is admirable diplomacy. South Korea and Japan have a history of fighting over territory, and Japan’s occupation of Korea from 1910-45 makes relations between the ostensibly friendly neighbours perpetually fragile.

And for now, Seoul is searching for solutions to its exporters’ woes that avoid overtly waging a currency war with Japan. The nation is flirting with (paywall) the idea of a so-called “Tobin tax” on financial transactions to try and push down the currency, and is also considering fiscal stimulus.

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