South Korea's gross domestic product grew 1 percent in 2025 from the previous year, according to Bank of Korea data, but the fourth quarter saw an unexpected 0.3 percent contraction. Strong exports drove the annual figure despite weakness in construction. This marks half the 2 percent expansion of 2024.
The Bank of Korea announced preliminary estimates on January 22 showing South Korea's economy expanded 1 percent in 2025 compared to the previous year, matching the central bank's earlier forecast. This slowdown from 2024's 2 percent growth marks the weakest performance since 2020's 0.7 percent contraction during the COVID-19 pandemic and falls below the nation's potential growth rate of around 1.8 percent.
Quarterly figures fluctuated: a 0.2 percent contraction in the first quarter, 0.7 percent growth in the second, 1.3 percent in the third, and a 0.3 percent decline in the fourth. The fourth-quarter contraction, the first in six months and the worst since late 2022, missed the prior forecast of 0.2 percent growth by 0.5 percentage points. BOK official Lee Dong-won attributed it to "base effects from robust third-quarter growth and weakness in construction investment," noting that "high construction costs and disruptions from a fire at the state data center negatively affected investment."
Exports drove annual growth, rising 4.1 percent from 6.8 percent in 2024, with semiconductors contributing 0.9 percentage points. Private consumption accelerated to 1.3 percent growth from 1.1 percent, but construction investment plunged 9.9 percent, deeper than 2024's 3.3 percent drop. A BOK official stated, "The economy would have posted a 2.4 percent annual growth rate if construction were excluded."
In the fourth quarter, exports fell 2.1 percent and imports 1.7 percent amid sagging auto and machinery demand, while construction investment dropped 3.9 percent—the sharpest since late 2024—and facilities investment slipped 1.8 percent. Private consumption edged up 0.3 percent, and government spending rose 0.6 percent. By industry, manufacturing declined 1.5 percent, construction 5 percent, but services grew 0.6 percent.
Looking ahead, the BOK projects 1.8 percent growth for 2026, driven by the semiconductor upcycle, sustained exports, rising private consumption, and increased government spending. Economist Dave Chia of Moody’s Analytics said the fourth-quarter contraction "has not derailed overall growth," adding that firmer household spending suggests consumption recovery will support 2026 expansion. The Ministry of Economy and Finance described the decline as due to temporary factors, with year-on-year fourth-quarter growth of 1.5 percent indicating continued recovery momentum.
