South Korea grows 1.5% in fourth quarter, missing forecasts as construction slump hits growth
INCHEON, SOUTH KOREA – MAY 22: Shoppers look at goods at a Wal-Mart store May 22, 2006 in Incheon, South Korea.
Chung Sung-jun | Getty Images News | Getty Images
South Korea’s economic growth slowed in the final quarter of last year as a sharp slump in construction investment, coupled with a pullback in exports, outweighed modest gains in consumption.
The economy expanded 1.5% in the October to December period from a year earlier, according to the central bank’s advance estimates, missing economists’ forecast of 1.9%. That compared with 1.8% growth in the prior quarter, when the economy expanded at its fastest pace in over a year.
On a quarterly basis, gross domestic product contracted 0.3%, marking the steepest slowdown since the fourth quarter of 2022. Economists polled by Reuters had expected a 0.1% expansion.
For the full year, South Korea’s economy grew 1%, its slowest annual expansion since 2020, when output contracted 0.7% during the pandemic.
Construction investment shrank 3.9% from the previous quarter as both building and civil engineering activity declined, according to data from the Bank of Korea. Facilities investment fell 1.8%, led by a drop in transportation equipment.
Exports pulled back 2.1% from the previous quarter as motor vehicles and machinery shipments fell. Manufacturing and utilities supply, including electricity, gas and water, dropped 1.5% and 9.2%, respectively.
Meanwhile, private consumption expanded 0.3% on services expenditures while government spending rose 0.6%, driven by health care benefits.
South Korean President Lee Jae Myung and his American counterpart, Donald Trump, reached a trade agreement in November that included $150 billion in Korean investment in the U.S. shipbuilding sector and an additional $200 billion in investment pledges.
In exchange, the Trump administration agreed to reduce tariffs on South Korean cars and auto parts to 15% from 25%.
Tariff tensions continued to cloud the outlook for the export-oriented economy. Last week, Trump imposed a 25% tariff on certain imported AI chips as part of his push to encourage semiconductor production in the U.S.
U.S. Commerce Secretary Howard Lutnick had suggested South Korean and Taiwanese chipmakers could face tariffs of up to 100% unless they commit to increased production in America.
Lee on Wednesday downplayed the renewed threat of semiconductor tariffs, saying the costs would likely be passed on to American consumers.
The Bank of Korea last week kept its benchmark interest rate unchanged at 2.5%, while signaling a possible end to its current easing cycle amid geopolitical uncertainties and persistent capital outflow risks.
The won has faltered more than 6% against the dollar since July last year, hovering near 16-year lows, driven in part by Korean retail investors piling into U.S. equities. Market intervention efforts, including waiving the foreign-exchange stability levy for banks, have so far failed to halt the currency’s decline.
Inflation remained subdued, easing to 2.1% last year from 2.3% in 2024, broadly in line with the central bank’s 2% target.
The Ministry of Economy and Finance last week raised its 2026 GDP forecast to 2% from its August projection of 1.8%.
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