Ministry of Economy and Finance: "Fourth Quarter Contraction Due to Base Effect... Fundamental Recovery Will Continue"

Last year, the South Korean economy grew by only 1%. In the fourth quarter, the growth rate recorded a 0.3% contraction compared to the previous quarter. While the semiconductor sector supported growth, sluggish construction investment held it back. However, the Ministry of Economy and Finance assessed that, despite the negative growth in the fourth quarter, the underlying recovery trend continues. The ministry explained that the fourth quarter was significantly affected by the base effect from the third quarter and the extended Chuseok holiday in October.

Yonhap News Agency

On January 22, the Ministry of Economy and Finance held a briefing on the "Fourth Quarter and Annual GDP for 2025" and made this announcement. The Bank of Korea stated that the preliminary real GDP growth rate for the fourth quarter of 2025 (quarter-on-quarter) was calculated at -0.3%. The quarterly growth rate had dropped to -0.2% in the first quarter of last year, rebounded to 0.7% in the second quarter, and then surprised with 1.3% growth in the third quarter, only to contract again in the fourth quarter.

Kim Jaehoon, Director of Policy at the Ministry of Economy and Finance, said, "The adjustment in the fourth quarter growth rate was due to the downturn in October," adding, "An improving trend has been observed since November." He further explained, "Due to the impact of martial law, growth in the first half of the year was limited to 0.3%, but in the second half, the growth rate expanded to 1.7%." Cho Sungjoong, Director of Economic Analysis, stated, "Construction investment increased by over 10% in September but decreased by more than 20% in October," and added, "Construction investment is an indicator with inherently high monthly volatility, and as the turning point between quarters coincided, the (statistical) impact was even greater."

The Ministry of Economy and Finance emphasized that the fundamental recovery trend of the economy is being maintained. Due to the impact of martial law, growth in the first half of last year was only 0.3% compared to the same period a year earlier, but in the second half, the growth rate expanded to 1.7%. In particular, the average quarter-on-quarter growth rate for the third and fourth quarters last year was 0.5%, reaching the level of the potential growth rate (0.4-0.5%). The annual growth rate last year was also 1.0%, which the government assessed as being in line with both government and market forecasts.

The ministry expects the recovery trend to continue next year as well. Director Kim stated, "All institutions are projecting the growth rate for 2026 to expand to around 2%," adding, "Improvements in the semiconductor industry, increased investment, and a recovery in private consumption will support this." The government also expects that the upward trend in gross domestic product (GDP) could have a positive impact by boosting consumer sentiment and leading to increased private consumption.