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Korea’s economy shrinks 0.2% in first quarter on weak domestic demand

Published: 05 Jun. 2025, 10:34 Updated: 05 Jun. 2025, 18:28

Shipping containers are stacked at Pyeongtaek Port in Gyeonggi on June 1. [YONHAP]

Korea’s economy contracted 0.2 percent in the first quarter of 2025, mainly due to sluggish domestic demand in construction investment and private consumption.

The Bank of Korea (BOK) on Thursday released its revised estimate for Korea’s GDP for the January to March period, confirming an on-quarter decline of 0.2 percent — the same figure as the advance estimate published on April 24.

The Korean economy had expanded 1.3 percent in the first quarter of 2024 but slipped into contraction in the second quarter with a 0.2 percent decline before posting 0.1 percent growth in both the third and fourth quarters.

Exports declined 0.6 percent from three months earlier in the first quarter due mainly to slower shipments of chemicals, machinery and equipment.

Facility investment fell 0.4 percent on quarter, marking its weakest performance since the first quarter of 2024.

In this year's first quarter, overall investment fell due to persistent uncertainty in domestic and global economic conditions.

Apartment complexes in southern Seoul [NEWS1]

Construction investment, especially in building projects, declined by 3.1 percent. Facility investment also dropped by 0.4 percent, led by reduced purchases of machinery and semiconductor manufacturing equipment — the sharpest drop since the first quarter of 2023.

Private consumption edged down by 0.1 percent, weighed by weaker spending on services such as entertainment and cultural activities. Government spending remained steady as an increase in spending on goods offset a decrease in health insurance benefits.

Exports fell 0.6 percent, dragged down by weaker performance in chemicals, machinery and equipment. Imports declined by 1.1 percent, mostly due to lower demand for energy sources such as crude oil and natural gas. While estimates for facility investment and exports were revised upward by 1.7 percentage points and 0.5 percentage points respectively, imports were also revised up by 0.9 percentage points, resulting in a greater offset.

In terms of contribution to growth, domestic demand — including construction investment and private consumption — pulled the overall rate down by 0.5 percentage points. Construction investment accounted for a negative 0.4 percentage points, while private consumption contributed minus 0.1 percentage points. Net exports, however, added 0.2 percentage points to growth as the decline in imports outpaced that of exports.

Shipping containers are stacked at Pyeongtaek Port in Gyeonggi on June 1. [YONHAP]

By industry, the electricity, gas and water supply sector expanded by 5.2 percent, driven by demand for gas, steam and air conditioning. Agriculture, forestry and fisheries grew by 4.4 percent on the back of a strong fishing industry.

On the other hand, manufacturing contracted by 0.6 percent due to weakness in chemicals, machinery and equipment. Construction shrank by 0.4 percent due to sluggish building activity. Despite gains in finance, insurance and information and communications, the service sector fell by 0.2 percent overall, as declines in transportation, retail, and hospitality offset the increases.

Nominal gross national income (GNI) rose by 0.1 percent compared to the previous quarter, exceeding the nominal GDP growth rate of minus 0.4 percent. This was due to an increase in net factor income from abroad, which rose from 10.4 trillion won to 13.9 trillion won. Real GNI also grew 0.1 percent. Although terms of trade deteriorated and real trade losses expanded from 10.8 trillion won to 13 trillion won, the rise in net real income from abroad — from 8.9 trillion won to 13 trillion won — contributed positively, outpacing the real GDP growth rate.

Separately, the BOK also released its provisional 2024 national accounts on Thursday. Per capita GNI came to $36,745, up 1.5 percent from the previous year. In Korean won terms, it rose 6.1 percent to 50.12 million won. This represents a slight increase from the $36,624 figure announced on March 5, which marked a 1.2 percent rise.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY JEONG JAE-HONG [[email protected]]