[비즈한국] On April 24 (local time), the International Monetary Fund (IMF) pointed out that countries in the Asia-Pacific region are more vulnerable to U.S. President Donald Trump's tariff policies than other parts of the world. In particular, the IMF explained that the South Korean economy's negative growth in the first quarter of this year, driven by weakening domestic demand and declining exports, clearly demonstrates this situation. It advised governments and central banks in the region to implement fiscal expansion policies and monetary easing to stimulate domestic demand. It also proposed measures to expand intra-regional trade, emphasizing the need for countermeasures as companies are expected to face significant difficulties due to sluggish domestic demand and falling exports.
In fact, South Korea saw a surge in businesses shutting down due to the double whammy of sluggish domestic demand and exports, with the number of self-employed people dropping by the largest margin in 10 years during the first quarter. Furthermore, with corporate bankruptcy filings hitting a record high in the first quarter, experts point out that the difficulties facing domestic companies are intensifying, making the preparation of countermeasures an urgent priority.
Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, diagnosed during a regional economic outlook briefing at the IMF headquarters in Washington, D.C. on April 24 that "the Asia-Pacific region is highly exposed to tariff shocks, and the impact is greater than in other regions." He explained that the reason Asia-Pacific countries are more vulnerable to tariff shocks compared to other regions is that these nations focus on commodity trade and have increased their export share to the U.S. while becoming more involved in global supply chains.
In particular, Director Srinivasan pointed to South Korea, which significantly lowered its economic growth forecast for this year (from 2.0% to 1.0%), as a prime example, stating, "South Korea’s Q1 growth rate (-0.2% compared to the previous quarter) proves that growth is slowing due to weakening domestic demand and a sharp decline in exports." Indeed, South Korea has been hit by the dual blow of weakening domestic demand and sluggish exports.
According to the Bank of Korea, private consumption fell by 0.1% in the first quarter compared to the previous quarter, and corporate investment also froze rapidly, with construction investment (-3.2%) and facility investment (-2.1%) both declining. As a result, total domestic demand, including consumption and investment, shrank by 0.7%. Exports also declined by 1.1% in the first quarter, recording negative growth. As of the first quarter, this rate of export decline is the largest in five years since the first quarter of 2020 (-1.6%), when COVID-19 was sweeping the world.
With both domestic demand and exports experiencing negative growth, domestic companies are feeling the full impact as they close their doors and file for bankruptcy one after another. According to Statistics Korea, the number of self-employed people in South Korea in the first quarter of this year was 5.523 million, a decrease of 160,000 from the previous quarter, falling to the lowest level since the first quarter of 2019 (5.52 million). The number of self-employed people in South Korea had reached a low of 5.538 million in the first quarter of last year, before rising to 5.668 million in the second quarter and 5.739 million in the third quarter.
However, as domestic demand began to sink following the martial law situation declared by former President Yoon Suk-yeol on December 3 last year, the number of self-employed people fell to 5.684 million in the fourth quarter. In the first quarter of this year, the addition of President Trump's tariffs led to a significant increase in self-employed individuals shutting down their businesses. In particular, the 160,000-person drop in the self-employed population during the first quarter is the highest in 10 years since the first quarter of 2015 (-164,000).
It is not just businesses closing; there is also a rise in companies filing for bankruptcy in court because they cannot repay their debts. According to the courts, the number of corporate bankruptcy filings in the first quarter was 453, a 3.2% increase compared to 439 in the first quarter of last year. Although the number of bankruptcy filings was 117 in January, which was lower than in January of last year (151), it jumped to 164 in February and rose further to 172 in March, showing an increasing trend as the economic situation worsens.
Because the number of companies filing for bankruptcy has increased over time, the number of corporate bankruptcy filings in the first quarter reached the highest level since related statistics began to be compiled in 2014. Given the trend of increasing bankruptcy filings due to sluggish domestic demand and slowing exports, there are concerns that the annual number of bankruptcy filings could exceed 2,000 for the first time in history this year. The year with the highest number of corporate bankruptcy filings was 2024, with a total of 1,940 cases.