Last Year's Growth Rate Barely Reaches 1.0%... Q4 Contracts by 0.3% (Update)

Bank of Korea Releases Preliminary Real GDP Figures for 2025 and Q4
Q4 Sees 0.3% Contraction... Annual Growth Achieves 1.0%
Exports and Consumption Offset Decline in Construction Investment

Last year, South Korea's economy barely managed to achieve 1.0% growth. Despite sluggish construction investment, increases in exports and consumption allowed the economy to meet projections. In the fourth quarter of last year, however, both construction investment remained weak and exports slowed, resulting in a 0.3% contraction.

The Bank of Korea announced on January 22 that last year's real gross domestic product (GDP) growth rate (preliminary figure) was 1.0% compared to the previous year. This matches the 1.0% forecast presented by both the government and the Bank of Korea. However, the persistent slump in construction investment since 2021 held back growth, causing the rate to be halved compared to the previous year (2024), which recorded 2.0% growth.

This growth rate is the lowest in five years, since the economy contracted by 0.7% in 2020 due to the pandemic. After that, South Korea's economy grew by 4.6% in 2021, 2.7% in 2022, and 1.6% in 2023, marking three consecutive years of decline before rebounding to 2.0% in 2024, only to fall back again last year.

The expansion of the construction investment slump dragged down the growth rate, but increased exports and consumption helped offset some of the decline, resulting in this outcome.

The growth rate of private consumption rose from 1.1% in 2024 to 1.3% last year. Government consumption also saw a significant increase, rising from 2.1% to 2.8%. Facility investment increased from 1.7% to 2.0%. In contrast, construction investment fell further, with the decline widening from -3.3% to -9.9% over the same period.

Exports increased by 4.1% compared to the previous year but the growth rate was somewhat lower than the 6.8% recorded in 2024. Conversely, imports rose from 2.5% to 3.8%.

By economic activity, the construction sector saw its decline deepen from -3.8% in 2024 to -9.6% last year, while manufacturing saw its growth slow from 4.3% to 2.0%. On the other hand, the service sector's growth expanded from 1.6% to 1.7%.

Last year, the private sector's contribution to growth was 0.4 percentage points, significantly lower than the previous year's 1.5 percentage points. The government's contribution remained the same as the previous year at 0.5 percentage points.

The contribution of net exports (exports minus imports) was 0.3 percentage points, lower than domestic demand (0.6 percentage points). Within domestic demand, private consumption (0.6 percentage points) and government consumption (0.5 percentage points) were the main drivers. In contrast, construction investment fell from -0.5 percentage points to -1.4 percentage points, indicating that the slump in construction investment had the most negative impact on the growth rate.

In the fourth quarter of last year, GDP fell by 0.3% compared to the previous quarter, marking the lowest level in three years. This is significantly below the Bank of Korea's November projection of 0.2%. This was the result of a base effect from strong growth in the previous quarter combined with weaker-than-expected exports.

Quarterly growth rates showed that, due to the aftermath of the martial law crisis at the end of 2024, the first quarter of this year saw a 0.2% contraction. However, the economy rebounded to 0.7% in the second quarter and increased to 1.3% in the third quarter.

In terms of domestic demand, construction investment remained weak, but consumption showed a moderate increase. Private consumption rose by 0.3% compared to the previous quarter, as spending on goods such as passenger cars decreased but spending on services such as healthcare increased. Government consumption increased by 0.6%, mainly due to health insurance benefit payments. In contrast, construction investment fell by 3.9% during the same period, as both building and civil engineering works declined. Facility investment also decreased by 1.8% as investment in transportation equipment such as automobiles fell.

Exports decreased by 2.1%, mainly due to declines in automobiles, machinery, and equipment. Imports fell by 1.7%, as imports of natural gas and automobiles decreased.

By industry, the agriculture, forestry, and fisheries sector increased by 4.6% compared to the previous quarter, mainly due to crop production, while manufacturing decreased by 1.5%. The electricity, gas, and water supply sector decreased by 9.2%, mainly due to the electricity industry, and the construction sector decreased by 5.0%. The service sector increased by 0.6%, as declines in wholesale and retail, accommodation, and food services were offset by increases in finance, insurance, and healthcare.

In the fourth quarter of last year, real gross domestic income (GDI) increased by 0.8%, outpacing the real GDP growth rate.