South Korea’s economy has effectively stalled, with growth hovering around 0% for three straight quarters from April to December 2024. For the first time in 26 years since the Asian financial crisis, growth has remained below 0.1% for three consecutive quarters. Back then, the economy contracted by 0.6% in the fourth quarter of 1997, shrank by 6.7% in the first quarter of 1998, and fell by 0.8% in the second quarter of 1998.
Korea’s 0.1% growth rate in the fourth quarter of last year fell short of the Bank of Korea’s November forecast of 0.5%.
The BOK announced on Jan. 23 that Korea’s real growth domestic product (GDP) growth rate reached 2% last year. The economy expanded 2% annually due to strong exports in the first quarter of last year, during which the economy grew 1.3%. Experts warn that Korea risks falling into a prolonged phase of structural slow growth.
According to a survey by the Federation of Korean Industries (FKI), a majority of 111 business school professors agreed with the notion of “Peak Korea,” which suggests that the country’s economic competitiveness has peaked and is now on a downward trajectory. Two-thirds of respondents said they agreed with the notion, while those who “somewhat agree” (52.3%) and “strongly agree” (14.4%) outnumbered those who disagreed (31.5%).
Around half of the respondents assessed Korea’s potential growth rate as below 2%, signaling that the economy has already entered a phase of persistent low growth.
Exports, the country’s primary growth driver, fared relatively well last year, but domestic demand remained sluggish. The contribution of net exports (exports minus imports) to GDP improved from -0.8 percentage points in the third quarter to 0.1 percentage points in the fourth quarter. However, the contribution of domestic demand dropped from 0.8 percentage points to 0 percentage points during the same period.
Weak private spending and construction investment weighed down on domestic demand. The BOK initially projected spending to grow by 0.5% in the fourth quarter, in line with third quarter figures. However, consumption rose just 0.2%. The central bank had predicted spending to recover in the fourth quarter, as inflation cooled to the 1% range and interest rates began to fall, but the BOK’s expectations proved overly optimistic.
“South Korea became a super-aged society last year, where 20% of the population is aged 65 or older,” said Lee Jung-hee, a professor at Chung-Ang University. “Reviving domestic demand in such a society is extremely difficult.”
Unexpected crises, including the martial law incident, impeachment turmoil, and the Jeju Air plane crash, also dampened consumer sentiment. Credit card spending during the last week of December fell 0.9% year-on-year, according to the BOK. This trend has continued into this year, with card spending dropping 0.8% year-on-year in the first 12 days of January.
Construction investment recorded negative growth for three consecutive quarters starting from the second quarter of last year.
The BOK’s outlook for construction investment also fell short of actual figures. The central bank predicted construction investment to decline 1.3% in the fourth quarter, but investment actually contracted 2.7%. Tighter government restrictions on household lending, coupled with the fallout from the Legoland debt crisis and the collapse of real estate project financing (PF), resulted in a housing market slump.
The outlook for 2025 remains bleak. In November, the BOK projected the Korean economy to grow 1.9% this year. However, this estimate has since been downgraded to 1.6–1.7%, reflecting the ongoing impact of the martial law and impeachment crisis, which have weakened domestic demand. Even exports, which have so far propped up growth, are showing signs of slowing down. According to the Korea Customs Service, exports in the first 20 days of January reached $36.1 billion, down 5.1% from the same period last year.
