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 has declined year-on-year for 19 consecutive months, and employment in the sector has fallen for 20 straight months. It appears unlikely that the industry will escape this slump in the near future.

On January 22, the Bank of Korea reported that real GDP growth for the fourth quarter of 2025 contracted by 0.3%, attributing the decline largely to sluggish construction investment. Both building and civil engineering sectors saw a 3.9% decrease year-on-year, resulting in an overall drop of -7.4%. 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 from a major construction company stated, "The business environment has rapidly deteriorated and become entrenched due to high interest rates and rising costs, including raw materials, equipment operation fees, and labor expenses."

Construction output 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, construction output in November last year was 11.6 trillion won, down 15.6% from the same month a year earlier and 3.1 trillion won lower than the three-year November average. The private sector was hit particularly hard. Cumulative private sector construction output for November last year was 104 trillion won, an 18.7% decrease from the same period the previous year.

Construction Employment Falls Below 2 Million... Record Number of Construction Company Closures for Two Consecutive Years

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

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

Lee Jihye, a researcher at the Korea Research Institute for Construction Policy, commented, "As the slump in construction output has become prolonged, 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 company closures set a new record for the second consecutive year. 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 set in 2024 since statistics began in 2005.

Orders Concentrated in Redevelopment and Reconstruction... Sharp Decline in Public Sector

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

Order performance for the cumulative period through November last year was 181.7 trillion won, down 1.8% from the same period the previous year. While private housing orders increased by 29.6%, public sector orders fell by 26.8%. The growth in orders was heavily concentrated in redevelopment and reconstruction projects.

The accumulation of "problematic unsold units," where funds cannot be recovered, continues. As of the end of November last year, the number of unsold homes stood at 68,794, a 0.4% decrease from the previous month. However, unsold units after completion reached 29,166, up 3.9% month-on-month, marking the highest level since March 2012. Unsold units after completion represent inventory for which construction companies have already incurred costs but have not been able to recover funds, directly translating into financial burdens.

Major research institutes forecast a slight rebound in the construction market this year but emphasize that a full recovery will take time. The Korea Research Institute for Construction Policy and the Construction Policy Research Institute predict that construction investment will increase by 2% year-on-year to approximately 270 trillion won this year. However, they note that this is largely due to a base effect from last year's sharp decline (-8.8%), and when accounting for inflation, the actual recovery will be limited.

Han Seunggu, Chairman of the Construction Association of Korea, stated, "Large construction companies are seeking opportunities overseas, but most of our 12,600 member companies lack such capacity. Domestic orders are shrinking, and interest burdens are growing." 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.