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Following a campaign blitz that lasted just under a month, 44 million South Korean voters cast their ballots on 3 June to elect the successor to Yoon Suk-yeol who was removed from office in April after several months of political uncertainty. Democrat Lee Jae-myung, who was defeated by Yoon in 2022, secured a landslide victory obtaining 49.2% of the votes, compared to 41.5% for Conservative Kim Moon-soo. 

This result is the beginning of a new chapter following a particularly intense political crisis, without however providing a solution to the deeper fragmentations that run through Korean society. Despite the weariness generated by months of turmoil and a campaign that had little focus on fundamental debates, voter turnout was high at 79.4%. The handover of power took place the day after the results were announced. 

An unprecedented political and institutional crisis

First there was the declaration of martial law on 3 December¹, which took everyone by surprise. Subsequent investigations showed that, far from being a moment of madness as initially thought, this decision was part of a more elaborate plan to give free rein to President Yoon, whose hands were somewhat tied by the turbulent coalition in place since the parliamentary elections in April 2024, which saw the Democratic Party increase its number of seats. Yoon also cited suspicions of electoral fraud and North Korean interference when justifying his decision. 

Opposition MPs reacted immediately by demanding that the National Assembly lift the martial law. This was followed by several weeks of marked confusion, during which several proceedings were launched, both to remove President Yoon from office and to prosecute him on various charges (rebellion, abuse of power, obstruction) for which he theoretically risks the death penalty (still in force in South Korea, although no executions have been carried out since 1997)². 

Prime Minister and later acting President Han Duck-Soo, who was also suspended - for complicity - before being reinstated, ultimately resigned in April to launch a campaign for the presidency, but later withdrew from the race³. The Finance Minister Choi Sang-mok, who was appointed his successor in accordance with protocol when he was dismissed, and who should have taken over after his resignation, then also resigned, leaving the role of acting president to Education Minister Lee Ju-ho. Instability of a sort rarely seen. 

Who is Lee Jae-myung, the new president?

The Democratic candidate was the favourite in the polls and successfully managed to maintain his lead. A human rights lawyer from a working-class background, he began his career working in factories while studying for the - highly competitive in South Korea - university entrance exam. He entered the world of politics in the early 2000s, initially as Mayor of Seongnam, a city of approximately one million inhabitants in the province of Gyeonggi (south of Seoul) before being appointed province governor. 

He ran for president in the 2022 elections but was narrowly beaten by Yoon. Less than 250,000 votes separated the two men following a campaign that was marked by numerous clashes and aggressive verbal attacks from both sides. In January 2024, Lee survived an attempted assassination. As leader of the opposition, he was actively involved in the advancement of Yoon’s impeachment proceedings and was the natural candidate to represent the Democratic Party, which he has led since 2022. Threatened by legal proceedings - he is the target of investigations into false declarations, perjury and embezzlement of public finds linked to former local mandates - he benefited from a favourable court decision ruling that the trials would not be held before the presidential election. 

With the Democratic Party still holding a parliamentary majority, Lee should have the flexibility and autonomy he needs to carry out his plans, at least until the next general election in 2028. 

And the economy? 

Externally, the uncertainty of customs duties...

The Korean political crisis has occurred in a particularly uncertain external context, as South Korea is hit with “reciprocal tariffs” of 25% on all its exports to the United States (20% of total Korean exports). Although the country immediately announced its intention to negotiate with the United States, the multiple U-turns in the State’s governance since April have not allowed for high-level discussions on trade-related issues. 

Negotiations are nonetheless underway, notably regarding Korea’s commitment to increase its imports of American liquefied natural gas (LNG). South Korea, which is highly dependent on its imports of fossil fuels (18% of total imports in 2024) does have some flexibility in terms of boosting its purchases of American gas ($7.5 billion in 2024, out of total LNG imports of $35 billion). The challenge is for South Korea to (in part) address trade imbalances with the United States, while Korea’s trade surplus has grown significantly since 2019 to reach a high of $55 billion in 2024. 

Other areas of negotiation include a partnership with the US Navy in shipbuilding, as South Korea, the world’s second-largest manufacturer after China in terms of volume, is the leader in high added-value ships and LNG carriers in particular. A specialisation that is of obvious interest to the US, which is seeking to further increase its fuel exports. Lastly, the cost of the American military presence in South Korean is an important factor. 28,200 US soldiers are permanently stationed in the country’s military bases. South Korea has committed to paying $1.19 billion in 2026, an increase of 8.3% on 2025, but the cost of this presence is an issue regularly raised by Donald Trump. 

Korean companies, and the Hyundai group in particular, have already announced substantial investments in the United States ($20 billion over three years for Hyundai), extending the trend for FDI initiated in 2020 and driven by the IRA (Inflation Reduction Act) and the American Chips Act, which led Korean conglomerates to take an American turn. The move could this time extend to vehicle manufacturers ($43 billion in exports to the US in 2024), while South Korea, as per the rest of the world, is hit with 25% customs duties in the automotive sector (vehicles and components). 

Less of a hardliner than the Conservatives with regard to North Korea and China, Lee is also keeping his distance from the United States, which he had described as an “occupying force” during the last campaign and accused of de facto authorising Japan’s annexation of Korea in 1910 following the signature of the Taft-Katsura agreement. His attitude toward negotiations with the Conservatives could therefore be different, even though there is little doubt that he will try to defend the interests of national companies and the most exposed South Korean sectors, starting with the automotive and semiconductor industries.  

Internally, fiscal stimulus

Internally, Lee has announced a more expansionary fiscal policy via an amending budget that could be voted on over the coming weeks and would enable the funding of certain flagship measures on his agenda (child allowance, minimum wage for agricultural workers in particular). This additional budget could be as high as 20 trillion won (approx. $15 billion). The fiscal stimulus plan could total 210 trillion won over five years (the presidential term of office in Korea). With debt standing at 54.5% of GDP in 2024, the country still has some budgetary room for manoeuvre, which the Democrats intend to use. 

The aim of this stimulus is to revive growth which has slowed significantly, with GDP even contracting (-0.3%) during Q1 2025, notably due to a sharp decline in investment. The growth forecast for 2025 is 0.8%, compared with 2% in 2024. 

The markets had reacted to this political crisis, before being partly reassured by statements from the Finance Minister and the central Bank of Korea (BoK) who had confirmed that everything would be done to support the currency and liquidity level and avoid excessive volatility. Although the won has strengthened over the past month, the South Korean currency has been the worst performer since December 2024, a decline linked more to its domestic situation than the tariffs. In May, the won did fall below the symbolic mark of 1,400 to the dollar, after reaching almost 1,500 in December. 

This situation should facilitate the decisions of the Bank of Korea, which has been committed since October 2024 to a more accommodating monetary policy and is planning further rate cuts before the end of 2025, to return to a key rate of around 2% (2.5% currently). Although inflation has risen sharply since the end of the year, it remains stable and could benefit from moderating global energy prices. 

Our opinion

The Korean elections have, as in 2022, highlighted the deep fractures in society. Gender divides, with a female electorate voting overwhelmingly in favour of the Democratic candidate, while the Conservative camp, represented by two candidates, attracted more male voters. Divisions regarding alliances, while the rapprochement with former enemy Japan, particularly regarding military cooperation, has not gained unanimous approval, but especially in terms of the line to be taken with the United States and China. Although there is a free trade agreement between the United States and South Korea, the latter likely did not expect such harsh treatment from a close ally. Although the country does have strong arguments to put forward (investments in Korean companies on American soil, possible increase in certain imports, military cooperation, partnership in the shipbuilding sector), it is also in the firing line due to its sectoral specialisations (automotive, chips, semiconductors) which are extremely strategic for the US and therefore risk being subject to specific tariffs, even if a global agreement is reached. 

President Lee therefore inherits a still prosperous South Korea, but one that has been weakened by a political crisis that has revealed the limits of a total presidential system and an overly strong politicisation of the judiciary. Issues he has promised to tackle, a task that could prove itself more than complex, with an opposition that has taken the fall of its president very badly and will surely use all its options to complicate the affairs of the new government.

Morocco is increasingly positioning itself as an anchor of stability in a region where stability is a differentiating factor. Covid, the global inflation crisis in food and energy prices resulting from the shock of the war in Ukraine, earthquake, repeated droughts… the past few years have not exactly been a bed of roses for the Moroccan government, which sound public policy management has nevertheless succeeded to maintain macroeconomic stability while protecting the monetary and public finance equilibria that underpin it. Meanwhile, Egypt and Tunisia remain mired in economic and financial crises which these shocks – most of them shared – are only irrigating. Algeria is stuck with a flagging rentier state model and Libya has yet to resolve its post-Arab Spring political transition.

Unemployment: the price of stability?

Morocco is steeped in a culture of stability which, looking beyond recent events and shocks, seems to be rooted in an older DNA, probably related to the country’s political structure and attachment to monarchy. However, as the economy slows, it has become legitimate to wonder whether this attachment to stability – a mark of trust for investors – has in some ways gradually become an impediment to economic vitality. Having averaged 4.3% over the period 2004–2014, growth has subsequently flagged, averaging 2.5% over the period 2015–2024 – as though standing still were the price of stability¹. The country seems to be approaching a crossroads where it is becoming difficult to maintain this compromise. In its latest report monitoring Morocco’s economic situation², the World Bank notes that economic growth is failing to create enough jobs. According to the institution, “over the past decade, the working-age population has grown by more than 10 percent, while employment has increased by only 1.5 percent”. Consequently, unemployment reached a record high of 13.3% in 2024, compared with 13% the previous year.

Of course, the various shocks of the past few years have compounded the pressure. Water stress is a particularly significant factor, with the agricultural sector destroying jobs more quickly than other sectors can generate them in urban areas. In reality, though, this is merely exacerbating an underlying structural issue, in addition to which the agricultural sector is becoming less labour-intensive as its productivity improves, and the economy is transitioning towards services.

Injecting some fresh momentum?

Lately, though, there’s a sense that something is changing, that tectonic plates are shifting. The government’s reform plan – the New Development Model³ launched in 2021 – is based on a clear-eyed diagnosis highlighting institutional bottlenecks that need to be removed and reforms needed to untangle knots that are constraining growth. Ultimately, then, the World Bank’s report, which focuses on reforms to the business climate, is reassuring: overall, it is aligned with what the reform plan aims to achieve (improving the regulatory environment, incentivising the formalisation of the economy, removing barriers to competition, overcoming challenges to education, making public services more efficient, etc.). And the early results are beginning to make themselves felt. The economy is shifting firmly towards exports: over the period 2021–2024, exports of goods and services on average accounted for 41% of GDP, compared with 33.5% over the period 2016–2020. This is a sign that the country has awoken to its geo-economic strengths at a time when global production chains are being reconfigured. Of course, this means it is even more exposed to European growth, in particularly cyclical sectors (such as automotive, aerospace, electronic components and tourism), but also in strategic ones (Morocco’s high reserves of phosphate mean it plays a key role in global food security). However, none of this has so far moved the needle on unemployment. How, then, should this challenge be addressed in the short-to-medium term?

When economic interests and feminism align

Taking a closer look, it is not only along the urban/rural axis that unemployment figures diverge. Female unemployment is increasingly acting as a brake on overall momentum. 

Moreover, one trend highlighted by the World Bank is more surprising: while development indicators have improved in Morocco – in particular, the fertility rate is falling and women’s education is improving – women’s share of the labour market has plummeted from 30% in 1999 to 19% in 2024. This is one of the lowest levels in the world. It is therefore obvious that targeting the issue of women’s employment is one of the most effective keys to addressing the issues of Morocco’s stagnant growth and unemployment. 

Here again, the economic transition and water stress are aggravating this structural challenge: agriculture is by far the sector that employs the most women. This means it is even harder for urban jobs to make up for the destruction of women’s jobs in agriculture: women in urban areas are hit harder not only by sectoral segregation and working conditions incompatible with parental responsibility but also by social norms around gender roles. This latter issue is particularly interesting: while the World Bank’s report includes the usual recommendations – for example increasing access to childcare solutions and adapting working hours and arrangements – it also offers a foretaste of a forthcoming study of the impact of gender social norms on women’s employment in Morocco.

Ladies, we love you

This forthcoming study used survey-based methods to gather empirical data quantifying the impact of social norms on structural constraints on women’s employment in Morocco. And, since the resulting figures are tangible and economic studies produced by such an institution are respected, we cannot resist giving you an early sneak peek of some salutary findings. First of all, ladies, we have allies: 81% of those surveyed said they were in favour of women working. Fair enough… but this falls to 62% when it comes to women working late, 61% for married women, 54% for women working in the absence of financial necessity and 21% for women working with a child under three years of age. Given that, what difference will childcare solutions make? But there is another even more striking finding. The initial figure of 81% (in favour of women working) reflects a shift in social norms: at the individual level, people are receptive to change. What is slower to shift, however, is perceptions of societal change: only 56% of respondents said they thought the community shared their opinion. In other words, the biggest obstacle to women working is fear of being judged by the community. Targeted information campaigns coupled with school-based interventions to change gender norms could prove essential in addressing Morocco’s growth and unemployment challenge.

Our opinion

Something is changing in Morocco. This is undeniably the case when you look at recent economic trends. Despite an attachment to stability that has long seemed opposed to economic vitality, the country has embarked on a programme of reforms that is seemingly beginning to bear fruit. It is attracting investment and focusing on exports. There are reasons to be optimistic about the growth outlook, especially with the authorities demonstrating that they know how to manage shocks. Yet there is one indicator that is going against the tide: unemployment. It reached a record high of 13.3% in 2024 and is pursuing a worrying trajectory. In its most recent “Morocco Economic Monitor” report, the World Bank emphasised that growth in the labour force far outpaced the rate of job creation. And, while the recurring, violent shocks of the past few years have added to the pressure, they are merely exacerbating an underlying structural problem. Although Morocco has initiated reforms, there remains an effective solution to accelerate growth and reduce unemployment in the nearer term: attack structural constraints on women’s employment. Morocco has one of the lowest women’s participation rates in the world, and female unemployment far exceeds men’s, notably as a result of gender social norms. This is how feminist causes are increasingly aligned with economic necessity. Morocco need not look too far afield to find a most striking example: in the much more conservative Saudi Arabia, the one thing that has had the biggest impact on reducing unemployment over the past few years is quotas for women’s employment.

On “Liberation Day”, the Gulf States were relatively spared by the threat of trade tariffs. However, there are other channels through which “Trump risk” can be transmitted. In particular, over the past few weeks oil prices have reflected global turbulence triggered by a cardboard chart held up on live TV at the beginning of April, combined with deeper uncertainty over the global balance between supply and demand. But amid the innumerable attempts at quantification and prediction, which areout of date within 24 hours and needconstant updating in light of this or that new event, has anyone evaluated the cost of the amount of collective intelligence expended on trying to keep up with the latest up-to-the-minute news? The reality is that, when an economy is dependent on commodities, all of its variables are exposed tovolatility in their prices. Fundamentally, then, the assessment of a country’s risk should not change because of market turmoil; rather, it should reflect the country’s ability to resist it. This would help reduce agitation. Fortunately, there is a practical tool for just that purpose: the fiscal breakeven. But this analysis does not necessarily fit neatly inside the box of a uniform indicator: sometimes various forms of rigidity make the wealthy Gulf States more vulnerable to storms than they appear. 

An oil market rocked by events and a geopolitical shift within OPEC+

The first week of April was a memorable one for oil. The announcement of harsher than anticipated trade tariffs, while expected, exacerbated doubts over global growth and, by extension, demand for oil. Less than 24 hours later, OPEC+ caught the market off guard when it issued a press release announcing plans to accelerate the unwinding of voluntary production cuts, by increasing the May output to three times the amount originally planned. The first concern is that this could reflect the group’s growing difficulty in agreeing on how to fulfil its role as an oil price regulator. Indeed, some of its members (notably Iraq and Kazakhstan) have significantly exceeded their production quotas, suggesting that cooperation is difficult. Under this scenario, the surprise increase in May is an attempt by the group to realign itself by giving these countries room to offset their overproduction – a test of the group’s unity. But the timing of the OPEC+ release, the day after reciprocal tariffs were announced, also raises questions about the American president’s influence over the organisation and its de facto leader, Saudi Arabia. One of his constant refrains has been a desire to keep oil prices low. But the potential levers of influence are a matter of pure speculation: is this a quid pro quo for Saudi Arabia’s positioning as host diplomatic of negotiations over Ukraine? Is it the part the Gulf States have agreed to play to avoid Israeli or American military intervention in Iran’s nuclear programme? Or is it progress on a nuclear cooperation deal with the United States that is in the balance for Saudi Arabia? Whatever the reasons behind it, if US influence were to dominate the decisions of OPEC+, this would only weaken the group’s cohesion and increase volatility in a market that is trying to digest its decisions while swimming against the tide.

Quiet militancy vs. breakeven as an analytical tool

Amid this turbulence, the breakeven – the oil price needed to balance an oil-exporting country’s budget – is a useful thing to calculate. It is a quick, simple and comparable entry point for analysing how resilient economies are to oil price shocks: the more a country’s breakeven exceeds the current price, the more room that country has to maintain its fiscal policy, without additional trade-offs, in the face of oil shocks. However, its analytical power is sometimes overused to the point where it leads to false conclusions. 

Firstly, breakeven analysis makes no distinction between the types of fiscal spending covered by oil revenue. It thus does not take into account how much flexibility a budget has to adapt to a potential shock. The example of Saudi Arabia is instructive in understanding this. Calculating the fiscal breakeven between 2018 and 2024 shows a deterioration in the budget’s sensitivity to an oil shock. What appears more interesting, however, is that the share of the public sector wage bill – difficult to adjust in the event of a shock – covered by non-oil revenue increased substantially over that same period. Secondly, the breakeven is a static measurement that reflects the procyclicality of fiscal policy. This means that, when a government reduces its discretionary spending in response to a shock, or increases discretionary spending when prices are high, the breakeven changes. However, in the absence of budget reform, this does not translate into greater or lesser resilience to shocks. In short, while the breakeven is a useful measure, on its own it is insufficient and perhaps even misleading. In any event, it should only be considered as part of an evolutionary and structural analysis. And even that is not enough: the effective rigidity of a given type of expenditure varies from country to country depending on how much compromise the political system will tolerate and how attached the population is to this or that expenditure – i.e. depending on the social contract. Beyond relative wealth, then, understanding these rigidities is key to evaluating a country’s strengths and weaknesses in the face of an oil shock.

A tentative diagnosis to reduce turbulence

For Bahrain, there is little doubt: the country has no room to withstand another prolonged oil shock. The country’s debt reached 123% of GDP in 2024, and its ever higher cost only adds to the budget’s rigidity in the face of shocks. This reflects a social contract aligned with the rentier states of the Gulf¹ but without the resources to back it up: in reality, Bahrain produces little oil. Its political structure makes reform particularly challenging. It is the only Gulf State to have experienced an “Arab Spring” uprising in 2011; this was mostly quelled by repression, though the regime never fully regained its legitimacy. However, unless the country transitions its model – which is politically difficult to do – its trajectory does not appear sustainable and could yet deteriorate more quickly in the event of an oil shock.

Kuwait, meanwhile, stands on firm ground, underpinned by an exceptional store of wealth built up over decades². This means that, from a sovereign risk perspective, the country can weather numerous storms. However, if we consider flows rather than stocks, its recurring deficits indicate that revenue no longer covers the growing fiscal cost of its welfare state model, now the most generous of any Gulf State. Paradoxically, though, the thing that has made Kuwait’s system rigid to reform is the fact that, unlike other Gulf States, it allows for political consultation through an elected parliament. This regularly crystallises individual interests that run counter to proposed government reforms. In May 2024, Emir Mechaal decided to temporarily suspend parliament. While this resolves the deadlock, it does so at the expense of Kuwaiti political tradition. The country’s fragility in the event of an oil shock is more about whether the government has the legitimacy to impose challenging reforms without parliament.

Oman’s sovereign profile³ has significantly improved recently, to the point where the country has regained its investment-grade rating. Of course, favourable oil prices since 2022 have helped. But the most important thing is that, since 2020, Oman has embarked on an ambitious programme of institutional reforms and deftly used surplus revenue to reduce its debt. Recent reforms suggest that there is greater political will to deconstruct rentier dynamics. Nevertheless, rigidities remain, notably in the labour market, reflected in continuing high unemployment that could, in the event of a lasting oil shock, test the resilience of reforms and thus the budget’s flexibility to adapt.

Saudi Arabia has placed a different bet. The divergence between its demographic trajectory and its oil rent was always going to lead to an unsustainable social contract. Rather than gradually dismantling distribution channels (subsidies, reduced public employment), which would primarily affect the middle class (a uniquely Saudi reality), the Kingdom has set out to transform its social, societal and economic model: to inject fresh momentum by transitioning its social contract. It has already managed to restructure its budget, leaving more room to invest in diversification. However, this is perhaps a specific case where capital investment, normally considered less rigid (because it can be adjusted in the event of a shock), becomes more rigid. If the government is no longer able to deliver on all its promises, its Vision 2030⁴ plan could lose momentum and be forced to stabilise around a more precarious interim equilibrium. 

Qatar and the United Arab Emirates still have plenty of room for manoeuvre – enough not to call into question their rentier-based social contract. The political equilibrium is thus strong enough to support economic transition. If the Emirates wish to go beyond Dubai’s model as a hub for diversification, the “moonshot” strategy of moving into cutting-edge sectors carries risks, but the resources to finance such a strategy, notably through a myriad of very well endowed sovereign wealth funds, appear secure. For Qatar, the North Field expansion will boost its revenue, particularly over the period 2026-2029, buying it some time. But the risk is that it will lag behind when it comes to diversification, which could ultimately force it to undergo riskier shock therapy.