South Korea’s Economic Overview

Investing.com reports that South Korea’s economy saw minimal growth last quarter, largely due to political turmoil affecting consumer spending, according to economist polls. The Bank of Korea (BOK) is expected to lower interest rates next month after maintaining them unexpectedly last week.

Economic Factors

As the fourth-largest economy in Asia, South Korea faces uncertainty following President Yoon Suk Yeol’s unsuccessful martial law attempt on December 3, which has negatively impacted economic sentiment and domestic demand, despite a recovery in exports.

The economy grew by just 0.1% during the July-September quarter and is forecasted for a 0.2% seasonally adjusted growth in Q4, as per a median estimate from 24 economists. On an annual basis, the economy grew 1.4% last quarter, nearly unchanged from 1.5% in the preceding quarter, according to a poll of 25 economists.

Consumer and Business Confidence

Krystal Tan, economist at ANZ, expects the Q4 GDP data to show stagnant growth, mostly influenced by weakened domestic demand—especially in December—stemming from political events that have eroded consumer and business confidence.

Exports

Despite turmoil, export figures rose by 6.6% in December year-on-year, with semiconductor exports increasing significantly by 31.5%.

Bank of Korea’s Response

The BOK maintained its key rate on January 16 to avoid further depreciation of the Korean won, which had dropped by over 12% last year due to political instability impacting investor confidence. The currency has since shown some recovery.

BOK Governor Rhee Chang-yong has indicated that a rate cut is under consideration, even though the recent focus was on currency stability rather than domestic demand.

Predictions for Rate Cuts

A snap poll of 25 economists after the BOK’s January decision predicts a 25 basis point cut in borrowing costs for February. Median forecasts suggest a total cut of 75 basis points by the end of Q3.

Min Joo Kang, senior economist at ING, noted that provided no further political deterioration occurs and global dollar strength remains a factor, the BOK is likely to work toward a February rate cut. The BOK will subsequently track economic conditions and political stability before implementing additional cuts.

The BOK also revised its 2025 economic growth projection down from 1.9% in November to a range of 1.6% to 1.7%, supporting the likelihood of a rate cut.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.