Market Update: Korean economy grows 1% in 2025 as Q4 GDP drops: BOK – Full Analysis

 
The Korean economy expanded 1 percent last year, driven by robust exports, but posted negative on-quarter growth in the fourth quarter, central bank data showed Thursday.
 
The country’s real gross domestic product (GDP) — a key measure of economic growth — for 2025 matched the Bank of Korea’s (BOK) earlier forecast, though the growth rate slowed from a 2 percent expansion in the previous year, according to the preliminary data by the central bank.
 
 
It marked the slowest growth since 2020, when the economy contracted 0.7 percent amid the Covid-19 pandemic and fell below the country’s potential growth rate of around 1.8 percent.
 
In the October to December period, Asia’s fourth-largest economy unexpectedly contracted 0.3 percent from the previous quarter, marking its first contraction in six months and the weakest quarterly performance since the fourth quarter of 2022.
 
The central bank earlier forecast the fourth-quarter GDP to expand 0.2 percent. On an on-year basis, GDP grew 1.5 percent in the fourth quarter, down from a 1.8 percent expansion in the prior quarter.
 
The economy had earlier unexpectedly shrunk 0.2 percent in the first quarter from the previous quarter as a domestic political crisis triggered by then-President Yoon Suk Yeol’s martial law declaration, along with uncertainties stemming from U.S. President Donald Trump’s sweeping tariff measures, weighed on consumer spending and dampened export growth.
 
But the economy rebounded in the second and third quarters, posting growth of 0.7 percent and 1.3 percent, respectively, on the back of government stimulus measures and robust exports, especially in the buoyant semiconductor sector.
 

Construction site of the Yongin semiconductor cluster, Gyeonggi, is seen on Jan. 20, 2026. [YONHAP]

 
For all of 2025, exports increased 4.1 percent from a year earlier, slowing from a 6.8 percent on-year increase in 2024. Private spending rose 1.3 percent, accelerating from 1.1 percent growth the previous year. But construction investment sank 9.9 percent, compared with a 3.3 percent contraction in 2024, while facility investment logged a 2 percent on-year expansion.
 
“The downturn in the construction investment deepened last year, though exports continued to increase and growth in private consumption strengthened,” a BOK official said.
 
In the fourth quarter, exports fell 2.1 percent from the previous quarter due mainly to the sagging auto and machinery demand, while imports retreated 1.7 percent. Construction investment plunged 3.9 percent, logging the sharpest on-quarter fall since the fourth quarter of 2024, while facilities investment slipped 1.8 percent, driven largely by declines in transport equipment, including automobiles.
 
Private consumption edged up 0.3 percent, while government spending gained 0.6 percent, the data showed.
 
The BOK said the domestic demand reduced fourth-quarter GDP growth by 0.1 percentage point, while net exports contributed to a 0.2 percentage-point contraction.
 
By industry, the manufacturing sector fell 1.5 percent due to weakness in transport equipment, machinery and equipment, while the electricity, gas and water supply sector plunged 9.2 percent. Construction also contracted 5 percent, while agriculture, forestry and fisheries rose 4.6 percent, and the services sector grew 0.6 percent.
 
Going forward, the BOK projects the economy to grow 1.8 percent this year, citing the ongoing semiconductor upcycle and continued export strength.

Yonhap