South Korea's Surprisingly Bad Economy Threatens Moon’s Political Future

(Bloomberg) -- South Korea’s Moon Jae-in has staked his presidency on tackling two big challenges: North Korea and the economy. Both are proving stubborn foes.

The country’s gross domestic product contracted 0.3 percent in the first quarter -- the biggest decline in a decade -- the Bank of Korea said Thursday. The blow came just two days before the president was expected to mark the first anniversary of his historic summit with North Korean leader Kim Jong Un -- with an event snubbed by the North Koreans.

“Not only the data today but also latest data showed that the economy is performing worse than expected. It won’t get any easier,” said Park Sangin, a professor at Seoul National University’s Graduate School of Public Administration. “It is a very burdensome situation for the Moon Jae-in administration.”

Moon’s policy double-whammy comes as he prepares to enter the third year of his single five-year term. The setbacks threaten to accelerate his shift to lame-duck status ahead of legislative elections next year -- a fate that has befallen every democratically elected leader of Asia’s fourth-largest economy and made it more difficult to advance their agendas.

‘Jobs President’

The economic structural problems, including a slowdown in nearby China and weakening global demand for semiconductors, were going to present any South Korean leader with problems. So, besides pledging to make himself the “jobs president,” he threw himself into convincing Kim and U.S. President Donald Trump to stop threatening each other with war and come to the negotiating table.

The peace push helped for a time offset series of economic setbacks, pushing Moon’s approval rating to 83 percent in the wake of his historic April 27, 2018, meeting with Kim on their militarized border. But his support has slipped as talks between the U.S. and North Korea faltered.

On Friday, his approval rating slipped to 44 percent from 48 percent a week earlier, according to Gallup Korea. Disapproval rating rose to 47 percent from 42 percent, outpacing the approval rating for the first time in four weeks.

More than a third of those who were unhappy with Moon’s performance cited the lack of ability to resolve the issues related to the economy and people’s livelihood, while 16 percent cited his “excessive” focus on improving relations with North Korea, according to the weekly survey.

Trump’s decision to walk away from his Feb. 28 meeting with Kim without a deal left Moon exposed to new criticism. The conservative opposition Liberty Korea Party has grown more emboldened as its own support rate inches up, opposing Moon’s appointments in parliament and mounting a protest against his North Korea policies last week that organizers say drew 20,000 people.

‘Officious Mediator’

Meanwhile, Kim has turned up his criticism of Moon, calling on him to stop acting like an “officious mediator” as North Korean state-media escalates complaints over U.S.-South Korean military exchanges. The North Koreans won’t be attending a series of artistic performances being held Saturday to celebrate the first anniversary of Moon and Kim’s agreement to achieve a “comprehensive and epochal improvement” in ties between the former foes.

There have been some bright spots for Moon, including his government’s much-lauded handling of a wild fire earlier this month that killed only person despite consuming 1,760 hectares (4,340 acres) of occupied land. Such successes have helped make Moon’s support more resilient than his predecessors.

But South Korea’s economy will continue to vex the president. The contraction comes even as Moon’s administration ramps up fiscal support, with an extra budget announced this week that came on top of a record budget already in place for 2019.

Exports, which account for about half of South Korea’s GDP, are on course for a fifth-straight monthly decline amid weak demand from China, the nation’s biggest market. And public displeasure has mounted over Moon’s support for sharp minimum-wage hikes, which have been blamed for helping hold the jobless rate at its highest level in about nine years.

Some supporters of Moon’s North Korean policies are urging the president to prioritize economic reforms.

“It’s good to continue to play a facilitator’s role, but now he really has to accomplish something,” said Park Won-suk, a former lawmaker at the progressive Justice Party. “For the citizens, accomplishment is about the economy, the issues related to their livelihood. The presidential office and the president should focus on those issues.”

To contact the reporter on this story: Youkyung Lee in Seoul at ylee582@bloomberg.net

To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Peter Pae

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