Last year, South Korea's economic growth rate was recorded at 2%. This is the seventh lowest level in historical growth rates. The state of emergency and the subsequent impeachment, along with the crash of a Jeju Air aircraft, significantly impacted the 4th quarter growth rate, which was only 0.1%—one-fifth of the Bank of Korea's estimate.
This year, the growth rate is expected to be lower than last year's. Domestic political uncertainty has not been resolved, leaving no room for improvement in the weakened consumer sentiment. Exports continue to experience structural slowdowns, resulting in a deepening economic recession. The Bank of Korea projects that the annual economic growth rate will be in the 1% mid-to-late range.
◇ Last year's GDP grew by 2.0%… Half of the 2021 level
According to the '2024 4th quarter and annual real gross domestic product (preliminary)' released by the Bank of Korea on the 23rd, last year's real GDP growth rate was recorded at 2.0%. Although this represents an improvement over 2023 (1.4%), it compares to half of the 2021 figure (4.3%) when the COVID-19 endemic was beginning.
Since the statistics for GDP growth rates were first compiled in 1954, the 7th lowest rates have occurred in 1998 (-4.9%), 1980 (-1.5%), 2020 (-0.7%), 1956 (0.7%), 2009 (0.8%), and 2023 (1.4%). In 1998, South Korea faced a currency crisis; in 1980, there was the second oil shock; the COVID-19 crisis occurred in 2020; in 1956, there were severe crop failures; and during the 2009 global financial crisis, the economy experienced major shocks. Among periods without significant economic crisis, the growth rates for 2023 and last year are the lowest.
The main reason for the decline in the growth rate to 2% is attributed to the slowdown in consumer growth. Last year, private consumption grew by only 1.1%, a smaller increase compared to 2023 (1.8%). This is the lowest level since the COVID-19 outbreak in 2020 (-4.6%). Government consumption increased by 1.7%, showing a larger increase compared to the previous year, but it could not offset the lackluster private consumption.
The Bank of Korea has identified that the state of emergency and political turmoil arising from impeachment, as well as the crash of a Jeju Air aircraft, have discouraged consumer sentiment. As a result, the GDP growth for the 4th quarter was only 0.1% compared to the previous quarter, significantly lower than the Bank of Korea's forecast of 0.5% presented in November. Shin Seung-cheol, the head of the economic statistics department at the Bank of Korea, noted, "As political uncertainty increased in December, the rate of credit card usage sharply decreased, affecting private consumption."
Investment weakness has also deepened. Last year's construction investment growth rate recorded -2.7%, marking a shift into negative territory. Excluding 2020 (1.7%) and 2023 (1.5%), all years since the COVID-19 outbreak in 2019 (-1.3%) have shown negative growth. The growth rate for facility investment was 1.8%, higher than the 2023 figure (1.1%), but only one-tenth of the level recorded in 2021 (10.2%).
Fortunately, the improvement in exports prevented the growth rate from dropping below 2%. Last year's exports increased by 6.9%, significantly up from the previous year (3.6%). The exports were influenced by the growing demand in information technology (IT). During the same period, the import growth rate also fell to 2.4%, a decrease of over 1 percentage point (p) from the prior year (3.5%), contributing to the increase in net exports (exports minus imports), which is one of the GDP components.
◇ This year's growth rate is lower… Impact of construction investment and export slowdown
This year's economic growth rate is expected to be in the mid-to-late 1% range. The Bank of Korea projected last November that this year's growth rate would be 1.9%, but has recently revised it down to 1.6% to 1.7%. The government has proposed a slightly higher growth rate of 1.8% compared to the projections from the Bank of Korea.
Construction investment is expected to remain weak this year, contributing to the deterioration in the growth rate. Director General Shin stated, "While the construction sector may see slight improvement in the second half, it will likely continue to be sluggish over the entire year, following last year's trend." He also mentioned, "Particularly, the construction weakness has intensified since the 4th quarter of last year, and this trend is expected to continue into the 1st quarter of this year."
The slowing growth rate of exports is also a cause for concern. Director General Shin noted, "Since the 3rd quarter of last year, the expansion of semiconductor supply from China has affected the slowdown in our exports," and added, "The political uncertainty that arose in the 4th quarter of last year is expected to continue as a risk factor for the 1st quarter of this year and for the annual growth rate."
Externally, the economic and trade policy changes resulting from the inauguration of the new U.S. government are also variables. U.S. President Donald Trump has indicated a 'universal tariff' policy, imposing up to 20% tariffs on imported goods before taking office. If this policy is implemented and protectionism intensifies globally, South Korea's exports, which are heavily reliant on trade, could be adversely affected.
The Bank of Korea believes that a supplementary budget is necessary to stimulate the economy. Director General Shin stated, "It is expected that even the first half of this year will show a lower growth rate compared to the same period last year, raising concerns about downward pressure on the economy," and added, "If supplementary measures for economic stimulus and the rapid execution of fiscal policies announced by the government come to fruition, it will help alleviate the downturn in private consumption sentiment and the weakness in construction investment."
The government also plans to accelerate policy execution to stabilize the livelihoods of citizens. Bom Kim, the first deputy minister of the Ministry of Strategy and Finance, stated at a meeting on economic relations and price issues held at the Government Seoul Building, "Amid the continued weakness in construction investment, the contraction of economic sentiment is restraining the recovery of consumer sentiment, leading to difficulties in domestic demand. The government will swiftly pursue the economic and livelihood policy tasks promised to the public."