Construction Drags Down GDP Growth by 1.4% Points... 19-Month Slump Marks Longest Downturn on Record (Comprehensive)

Construction Output Down for 19 Months, Employment Falls for 20 Consecutive Months
Sluggish Construction Investment Wipes Out 1.4 Percentage Points from Growth Rate
Record Number of Construction Company Closures for Second Consecutive Year

The construction industry downturn has broken previous records for duration, weighing heavily on the South Korean economy. Construction output (completed construction work) has declined year-on-year for 19 consecutive months, while employment in the sector has fallen for 20 straight months. Escaping this slump is expected to remain difficult this year as well.

On January 22, the Bank of Korea reported that real GDP growth for the fourth quarter of 2025 contracted by 0.3%, identifying sluggish construction investment as a major cause. The building and civil engineering sectors recorded a 7.4% drop compared to the same period last year, with a 3.9% decrease in both segments. The Bank of Korea estimated that if construction investment had been neutral, annual growth could have reached 2.4%. In effect, the construction sector shaved nearly 1.4 percentage points off the growth rate.

An official at a major construction company stated, "After a rapid deterioration in the business environment due to high interest rates and rising costs (including raw materials, equipment operation fees, and labor costs), the situation has become entrenched."

Construction output (completed construction work) has declined year-on-year for 19 consecutive months since May 2024, marking the longest downturn on record. According to the Korea Research Institute for Construction Policy, the output in November 2025 was 11.6 trillion won, down 15.6% from the same month a year earlier and 3.1 trillion won below the three-year November average. The private sector was hit particularly hard. Cumulative private-sector output in November 2025 was 104 trillion won, an 18.7% decrease from the previous year.

Construction Employment Falls Below 2 Million... Number of Construction Firm Closures Hits Record High for Second Consecutive Year

Last July, workers were walking near the halted apartment construction site in Daemyeong-dong, Nam-gu, Daegu. Photo by Kang Jin-hyung

Construction employment has also fallen below the "2 million" mark. According to the National Data Office's recently released "December 2025 and Annual Employment Trends," the average number of people employed in construction last year was 1.94 million, down by 125,000 (-6.1%) from the previous year. This is the largest decline since the industrial classification was revised in 2013. On a monthly basis, employment has fallen for 20 consecutive months through December 2025.

Lee Jihye, a researcher at the Korea Research Institute for Construction Policy, said, "As the slump in construction output drags on, structural employment adjustments are underway. If the outflow of skilled workers accelerates, even if the market recovers, there could be problems with productivity and safety."

The number of construction companies closing down has set new records for two consecutive years. According to the Construction Industry Knowledge Information System of the Ministry of Land, Infrastructure and Transport, there were 675 closures of general construction companies last year, surpassing the previous record of 641 in 2024, the highest since statistics began in 2005.

Orders Concentrated in Redevelopment and Reconstruction... Public Sector Plummets

Apartment construction site in Buk-gu, Daegu, where construction was halted due to workers' wage arrears. Photo by Kang Jinhyung

Order performance totaled 181.7 trillion won cumulatively through November last year, a 1.8% decrease from the same period the previous year. Private residential orders rose by 29.6%, but public sector orders fell by 26.8%. The increase in orders was heavily concentrated in redevelopment and reconstruction projects.

The volume of "toxic unsold units," where funds cannot be recovered, continues to accumulate. As of the end of November last year, there were 68,794 unsold housing units, a 0.4% decrease from the previous month. However, unsold units after completion reached 29,166, a 3.9% increase from the previous month and the highest since March 2012. Unsold units after completion represent inventory for which construction companies have already paid construction costs but have not recovered funds, directly translating into financial burdens.

Major research institutes predict that the construction market will rebound slightly this year but caution that a full-fledged recovery will take time. The Korea Research Institute for Construction Policy and the Korea Construction Policy Research Institute forecast that construction investment will increase by about 2% year-on-year to approximately 270 trillion won in 2026. However, this is mainly a base effect from last year's sharp drop (-8.8%), and when accounting for inflation, the real recovery is expected to be limited.

Han Seunggu, Chairman of the Construction Association of Korea, said, "Large construction companies are seeking opportunities overseas, but the vast majority of our 12,600 member companies do not have that capacity. Domestic projects are dwindling, and interest burdens are rising." Minister of Land, Infrastructure and Transport Kim Yoonduk is reportedly planning to meet with the construction industry soon to hear about the challenges faced on the ground.