South Korea′s Economy Contracts in Q1 Amid Domestic Weakness, Raising Concerns Over Annual Growth

South Korea's Economy Contracts in Q1 Amid Domestic Weakness, Raising Concerns Over Annual Growth: Paul Lee / Published : 04/24/2025 08:46 AM

Photo = Yonhap news

[Alpha Biz= Paul Lee] Seoul, April 24, 2025 — South Korea’s economy shrank in the first quarter of 2025, highlighting persistent domestic demand weakness and raising doubts over the country’s full-year growth target.

According to preliminary data released by the Bank of Korea (BOK) on Wednesday, real GDP contracted by 0.2% quarter-on-quarter. The figure is 0.4 percentage points below the BOK’s earlier forecast of 0.2% growth, marking the second quarterly contraction in less than a year.

Since posting a surprising 1.3% expansion in Q1 2024, the Korean economy has struggled to regain momentum, recording -0.2% in Q2, and flat growth (0.1%) in both Q3 and Q4 last year. The latest figures raise the risk that the central bank’s 1.5% annual growth projection may need to be revised downward.

The BOK previously flagged potential downside risks, citing prolonged domestic political uncertainty, weakened consumer sentiment in March due to U.S. tariff concerns, widespread wildfires, construction site shutdowns, and deferred demand for high-bandwidth memory (HBM) semiconductors.

Private and public consumption both declined by 0.1%, with reduced spending on services such as leisure and healthcare. Construction investment plunged 3.2%, while facilities investment fell 2.1%, mainly due to lower spending on semiconductor-related machinery. The latter represents the sharpest drop since Q3 2021.

Exports decreased by 1.1%, particularly in chemical and machinery products, while imports dropped 2.0%, mainly driven by lower energy imports such as crude oil and LNG.

In terms of contribution to GDP, construction and facility investments dragged growth down by 0.4 and 0.2 percentage points, respectively. Net exports contributed positively with a 0.3 percentage point gain, as imports declined more steeply than exports. Overall domestic demand (consumption + investment) shaved 0.6 percentage points off growth.

By sector, utilities (electricity, gas, water) surged 7.9% thanks to higher output in gas and air conditioning supply, and agriculture, forestry and fisheries grew 3.2%, led by a strong fishing season. On the other hand, manufacturing shrank by 0.8% and construction fell 1.5%.

The services sector showed zero net growth, with gains in finance, insurance, and ICT offset by declines in transport, retail, and hospitality. Real Gross Domestic Income (GDI) also dropped 0.4% quarter-on-quarter.