INCHEON, SOUTH KOREA – MAY 22: Shoppers view merchandise at a Walmart store on May 22, 2006 in Incheon, South Korea.
Jung Sung Joon | Getty Images News | Getty Images
South Korea’s economic growth slowed in the final quarter of last year as a sharp decline in construction investment and a drop in exports outweighed a modest increase in consumption.
According to the central bank’s advance forecast, the economic growth rate for the October-December period was 1.5% compared to the same period last year, falling short of the 1.9% expected by economists. This compares with 1.8% growth in the previous quarter, when the economy expanded at its fastest pace in more than a year.
On a quarterly basis, gross domestic product (GDP) decreased by 0.3%, the largest slowdown since the fourth quarter of 2022. Economists polled by Reuters had expected a 0.1% expansion.
South Korea’s economic growth rate for the full year was 1%, the slowest annual growth rate since 2020, when production contracted by 0.7% due to the pandemic.
According to Bank of Korea data, construction investment fell 3.9% quarter-on-quarter as both construction and civil engineering activities declined. Capital investment decreased by 1.8% due to a decrease in transportation equipment.
Exports fell 2.1% from the previous quarter due to a decline in shipments of automobiles and machinery. Supply for manufacturing and public utilities, including electricity, gas and water, fell by 1.5% and 9.2%, respectively.
Meanwhile, personal consumption increased by 0.3% on services spending, and government spending increased by 0.6%, led by health benefits.
South Korean President Lee Jae-Myung and U.S. President Donald Trump agreed in November to a trade deal that included $150 billion in South Korean investment and commitments for an additional $200 billion in the U.S. shipbuilding sector.
In return, the Trump administration agreed to reduce tariffs on South Korean-made cars and auto parts from 25% to 15%.
Tariff tensions continued to cloud the outlook for the export-oriented economy. Last week, President Trump imposed a 25% tariff on certain imported AI chips as part of a push to boost semiconductor production in the United States.
U.S. Commerce Secretary Howard Lutnick has suggested that South Korean and Taiwanese chip makers could face tariffs of up to 100% unless they commit to increasing production in the United States.
Lee on Wednesday downplayed the threat of new semiconductor tariffs, saying the costs would likely be passed on to U.S. consumers.
The Bank of Korea last week kept its benchmark interest rate unchanged at 2.5% amid geopolitical uncertainty and persistent risks of capital outflows, suggesting the current easing cycle may end.
The won has fallen more than 6% against the dollar since July last year, hovering near its lowest level in 16 years, as individual Korean investors rushed into US stocks. Market intervention efforts, such as exempting banks from the foreign exchange stability tax, have so far failed to stem the currency’s decline.
Inflation remains subdued, falling to 2.1% last year from 2.3% in 2024, roughly in line with the central bank’s 2% target.
Last week, the Ministry of Economy and Finance raised its GDP forecast for 2026 to 2% from the 1.8% forecast in August.
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