Moon Jae-in of the liberal Minjoo Party has been South Korea’s president since 2017, and his single five-year term will end in May this year. The next presidential election, which is scheduled on March 9th, will be a tight contest between Lee Jae-myung, candidate of the Minjoo Party, and Yoon Seok-youl, who represents the main opposition, the conservative People Power Party (PPP). Two other presidential candidates representing minor opposition parties, Ah Cheol-soo of the People Party and Sim Sang-jung of the Justice Party, will also compete for the presidency, but their winning prospects are slim.

Is a conservative victory on the cards?

EIU expects Yoon Seok-youl to win the presidential election, amid public dissatisfaction with Minjoo’s performance in government, particularly regarding increasing economic inequality, the government’s failure to curb growth in property prices and a lack of progress in tackling official corruption and abuse of power. A former prosecutor-general who resigned in March 2021 in protest at the government’s prosecution reforms, Yoon Seok-youl has a policy agenda that favours closer defence co-operation with the US, economic deregulation, a reduction of the tax burden for businesses, an increase in private-sector housing supply and more targeted fiscal support for industries hit by the pandemic. However, Lee Jae-myung could still take office if substantial progress is made on economic normalisation and there is an increase in household income before the election. The swift containment of covid 19 in Gyeonggi province, where he served as governor until October 2021, won him popular acclaim, although his signature policy proposal—a universal basic income—has received a mixed response from the electorate, amid concern about the government’s fiscal burden.

How would a conservative victory affect the business environment?

A conservative victory in the presidential election will result in slower policymaking and potential deadlock in areas such as labour market reforms and fiscal policy, given our expectation that Minjoo—which will remain inclined towards expansionary fiscal policy and progressive redistributive policies—will control parliament until 2024. By contrast, a conservative-led government will prefer to rein in expenditure and to use tax incentives to spur growth and consolidate the public finances.

Regardless of political inclinations, South Korea’s government will employ policy and tax incentives to encourage investment in advanced technologies and digital infrastructure, with the aim of promoting competitiveness and independence in manufacturing. South Korea will remain attractive to foreign investors in high-technology manufacturing because of its skilled workforce and investment-friendly policies, but its potential for expansion will be limited by high labour costs and strong unions. We believe that a conservative-led government will continue to prioritise digital integration and the development of renewable energy, particularly offshore wind power, electric vehicles and charging infrastructure, in order to achieve the carbon neutrality goal by 2050.

Moderating the rapid growth in property prices will be another priority for the government. We expect the authorities to increase the supply of affordable housing through public planning and policy incentives for private developers, and to reduce regulatory constraints on private-sector housing development to tackle supply shortages, particularly in densely populated urban areas.

This year is dominated by a series of important elections. Uniquely positioned to intersect politics, policy and the economy, EIU Country Report’s should be vital reading when assessing how decisions at the ballot box will affect your business operations. All our reports are available to explore here.