Economists react to South Korean president’s impeachment

South Korea’s Park Geun-hye has been formally stripped of her presidency in a landmark unanimous decision by the country’s constitutional court. What happens next is an open question – one that longtime observers attempted to answer on Friday as protesters danced (and clashed) in the streets of Seoul.

At Standard Chartered, Chong Hoon Park, Kathleen Oh and Eddie Cheung were bullish on the outlook for stimulus in the year’s back half:

With political uncertainty removed and an early election to be held in May, we see upside potential for Korea’s economy as sentiment stabilises. We now expect further fiscal stimulus in H2-2017, which is likely to have a positive impact on the economy by 2018. On the negative side, geopolitical challenges, rising household debt and slowing domestic consumption continue to pose downside risks.

Nomura’s Young Sun Kwon expected snap elections by May 9 at the latest, but held off on prognosticating much more than that:

We believe that today’s decision will likely reduce political uncertainty and the market will now focus on the new government. Political parties have yet to designate candidates for the presidential election. We will closely monitor domestic political developments but, for now, we maintain our below-consensus 2.0% GDP growth forecast for 2017.

At Capital Economics, Krystal Tan discounted the likelihood of a sharp rebound despite the possibility of a fiscal stimulus, pointing to enduring structural issues:

There has so far been very limited discussion on the kind of reforms Korea needs, however, beyond an agreement among the main parties about the importance of curbing the influence of family-run conglomerates such as Samsung (hardly surprising given the ongoing scandal). And even if the candidates started to show a stronger interest, the fact that no party holds a three-fifths super majority needed to unilaterally pass bills suggests that whoever is elected as president will struggle to push through reforms.

Kai Wei Ang and Hao Zhu at Commerzbank say it’s all a “huge relief” to markets.

It avoids a potentially disastrous scenario of President Park returning to power amid intense public discontent. With public confidence restored, the government will be better able to come out with more forceful fiscal measures to counter the slump in consumer sentiment. We reckon that a supplementary budget of around $10bn could be introduced in Q3 to shore up consumer sentiment which has slumped to the lowest since 2009.

Over the longer term, it is still very much status quo as the implementation of much-needed structural reforms remain a challenge.

We see limited implications for monetary policy and FX. We expect Bank of Korea to maintain its accommodative stance by keeping rates on hold at an all-time low of 1.25%.