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Korean economy contracts in Q1 on weak domestic demand and exports

Published: 24 Apr. 2025, 09:42 Updated: 24 Apr. 2025, 16:15

Signs noticing availabity for commercial rent are posted on a building in Myeong-dong, central Seoul, on April 20. [YONHAP]

Korea’s economy contracted in the first quarter of 2025, as sluggish domestic demand and weakening exports weighed on growth, according to data released by the Bank of Korea (BOK) on Thursday.

GDP fell 0.2 percent from the previous quarter, missing the BOK’s earlier forecast of 0.2 percent growth. The central bank’s projection had already signaled downside risks, but the actual outcome marked a sharp downward revision of 0.4 percentage points.

This marks the second contraction in three quarters following a 0.2 percent drop in the second quarter of 2024. Growth in the latter half of last year had stalled at just 0.1 percent in both Q3 and Q4. With the latest decline, the economy has effectively marked a full year of near-zero growth — an unprecedented trend since official statistics began.

On April 17, the Bank of Korea had signaled the possibility of negative growth in Q1, citing a range of downside factors. These included prolonged domestic political uncertainty, weakened economic sentiment in March due to concerns over U.S. tariff policies, record-breaking damages from wildfires in Gyeongsang, suspended operations at some construction sites and deferred demand for high bandwidth memory chips.

The central bank’s Thursday data showed private consumption slipped 0.1 percent in the first quarter, weighed down by lower spending on services such as entertainment and medical care. Government spending also declined 0.1 percent due to reduced health insurance expenditures.

The biggest drag came from construction investment, which plunged 3.2 percent amid a slowdown in building projects. Facility investment also dropped 2.1 percent, driven by reduced purchases of semiconductor manufacturing equipment and other machinery — the steepest decline since the third quarter of 2021.

Containers are stacked at Busan Port on April 21. [NEWS1]

Exports declined 1.1 percent due to weaker demand for chemical products, machinery and equipment. Imports also fell 2.0 percent, largely due to lower energy purchases such as crude oil and natural gas.

By industry, electricity, gas and water supply grew 7.9 percent, driven by increased output in gas, steam and air conditioning services. Agriculture, forestry and fisheries expanded 3.2 percent thanks to gains in the fishing sector.

Manufacturing shrank 0.8 percent as chemical products and machinery output slowed, while construction declined 1.5 percent, dragged down by weak building activity.

Service sector performance was mixed. While finance, insurance and IT posted gains, retail and transport sectors underperformed, keeping overall service growth flat compared to the previous quarter.

Real gross domestic income (GDI), which reflects purchasing power, declined 0.4 percent on quarter. Analysts expect the BOK to revise down its 2025 growth outlook of 1.5 percent, as external and internal pressures mount.

The International Monetary Fund (IMF) echoed a more pessimistic tone, forecasting on April 22 that Korea’s economy will grow just 1.0 percent this year.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY HAN YOUNG-HYE [[email protected]]