South Korea’s Economy Grows 1% in 2025 Despite Fourth Quarter Contraction

Exports Support Annual Growth but Economy Shrinks in Final Quarter​

South Korea’s economy expanded by 1 percent in 2025, supported largely by strong export performance, although the country recorded negative growth in the final quarter of the year, according to data released by the Bank of Korea on Tuesday.

Real gross domestic product (GDP), a key indicator of economic activity, contracted by 0.2 percent in the October to December quarter compared with the previous quarter. The revised figure was slightly better than the earlier estimate of a 0.3 percent contraction released by the central bank.

The fourth quarter decline marked the first quarterly contraction since the January to March period of the previous year, when the economy also shrank by 0.2 percent.

Economic Momentum Slows Compared With 2024​

For the full year, South Korea’s economy grew by 1 percent, matching the central bank’s earlier estimate but slowing significantly from the 2 percent expansion recorded in 2024.

Economic activity in 2025 was uneven across quarters. The first quarter saw a 0.2 percent contraction amid a domestic political crisis triggered by former President Yoon Suk Yeol’s declaration of martial law, combined with global uncertainties linked to sweeping tariff measures introduced by U.S. President Donald Trump. These developments weighed on consumer spending and weakened export growth.

However, the economy rebounded in the following quarters. GDP expanded by 0.7 percent in the second quarter and accelerated further to 1.3 percent in the third quarter, supported by government stimulus measures and strong export demand during a semiconductor upcycle.

Per Capita Income Shows Modest Increase​

The data also showed that South Korea’s per capita nominal gross national income (GNI) reached $36,855 in 2025, representing a modest 0.3 percent increase from the previous year.

In local currency terms, the figure rose by 4.6 percent, reflecting the impact of a weaker Korean won.

Per capita GNI first crossed the $30,000 mark in 2014 and continued to climb in the following years, approaching $38,000 in 2021. The figure declined to the $35,000 range in 2022 before recovering to $36,195 in 2023. Growth in income slowed to 1.5 percent in 2024 and further to 0.3 percent in 2025, keeping the level in the $36,000 range for the third consecutive year.

Trade and Investment Weigh on Fourth Quarter Output​

Economic performance in the fourth quarter was affected by weaker trade and investment activity.

Exports declined by 1.7 percent from the previous quarter due mainly to reduced demand for automobiles and machinery. Imports also dropped by 1.5 percent over the same period.

Investment indicators also weakened during the quarter. Construction investment fell sharply by 3.5 percent, while facilities investment declined by 1.7 percent, largely due to reduced spending on automobiles and other transport equipment.

On the consumption side, private spending edged up by 0.3 percent, while government expenditure increased by 1.3 percent during the quarter.

Export Growth Remains Key Driver for the Year​

Despite the late year slowdown, exports remained the main driver of economic growth in 2025.

Outbound shipments rose by 4.2 percent year on year, supported by strong demand for semiconductors, although the pace slowed compared with the 6.8 percent growth recorded in 2024. Imports increased by 3.8 percent over the same period.

Private consumption grew by 1.3 percent in 2025, slightly improving from the 1.1 percent expansion recorded a year earlier.

However, construction investment contracted sharply by 9.8 percent during the year, a deeper decline compared with the 3.3 percent drop recorded in 2024. Facility investment, meanwhile, expanded by 2 percent on an annual basis.

Central Bank Projects Economic Recovery in 2026​

Looking ahead, the Bank of Korea expects economic activity to strengthen. The central bank projects South Korea’s economy to grow by 2 percent in 2026, supported by strong exports and a recovery in private consumption.