South Korea’s economy barely grows in fourth quarter as political crisis changes outlook for 2025 Reuters
By Jihoon Lee
SEOUL (Reuters) – South Korea’s economy barely grew in the fourth quarter of 2024, missing market expectations, as domestic demand was hit in part by the country’s worst political crisis in decades, raising bets for more fiscal and monetary support to revive growth.
Gross domestic product (GDP) rose 0.1% from the previous quarter on a seasonally adjusted basis, the central bank’s advanced estimates showed on Thursday, compared with a 0.1% increase in the third quarter and 0.2% forecast in Reuters poll.
In December, consumer and business sentiment weakened amid political chaos, after President Yoon Suk Yeol was impeached and suspended from office over his short-lived martial law push, followed by the impeachment of Prime Minister Han Duck-soo.
In the quarter, consumer spending rose 0.2% and corporate investment rose 1.6%, weaker than the previous quarter’s growth of 0.5% and 6.5%, respectively, while construction investment fell 3.2 %.
Exports rose 0.3%, recovering from a 0.2% drop in the previous quarter, led by semiconductor sales on strong demand for artificial intelligence.
South Korea’s central bank is expected to cut interest rates by 25 basis points next month and twice more this year to 2.25%, following an unexpected decision to hold rates this month to prevent the won – which weakened the most among the Asian currencies – from further decline.
“The Korean economy continued to struggle in the fourth quarter and we suspect weakness in activity may persist in the short term due to the ongoing political crisis and the poor outlook for the construction sector,” said Shivaan Tandon, market economist at Capital Economics.
Economists and opposition lawmakers are increasingly calling on the government to draft a supplementary budget to support weak domestic demand, with Bank of Korea Governor Rhee Chang-yong no less saying that was the case last week.
Finance Minister Choi Sang-mok, the acting president, said earlier this week that the government was willing to discuss the matter with parliament.
In the October-December quarter, GDP rose 1.2% year-on-year, weaker than the 1.5% increase in the previous quarter and the 1.4% expected by economists, and marked the slowest pace since the second quarter of 2023.
In 2024, Asia’s fourth-largest economy grew 2.0%, after growing 1.4% in 2023, but its growth is forecast to slow again in 2025 to 1.6% or 1.7% , below the estimated potential of around 2%, according to the Bank of Korea.
