Korean Economy
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Ⅰ. Korea's GDP Growth in the Fourth Quarter of 2025
1. Real Gross Domestic Product in Q4 2025
In the fourth quarter of 2025, real gross domestic product (GDP) declined by 0.3% quarter-on-quarter, while recording a 1.5% increase year-on-year. Real gross domestic income (GDI) rose by 0.8% quarter-on-quarter. From the expenditure perspective, private consumption increased by 0.3% quarter-on-quarter, as growth in services consumption, including medical services, more than offset a decline in goods consumption, such as passenger vehicles. Government consumption expanded by 0.6%, mainly reflecting higher health insurance benefit payments. Construction investment contracted by 3.9%, driven by declines in both building construction and civil engineering works. Facilities investment fell by 1.8%, led by reduced investment in transport equipment, including automobiles.
On the external front, exports decreased by 2.1%, primarily reflecting weaker shipments of automobiles and machinery and equipment, while imports fell by 1.7%, due mainly to lower imports of natural gas and automobiles.
- 1) Changes in inventories represent the contribution to GDP growth (%p).
- 2) Figures in parentheses ( ) indicate year-on-year growth rates (%).
From the perspective of economic activities, agriculture, forestry, and fishing increased by 4.6%, mainly driven by crop cultivation. Manufacturing fell by 1.5%, led by transport equipment and machinery and equipment, while electricity, gas, and water supply contracted by 9.2%, mainly reflecting a decline in electricity output.
Construction decreased by 5.0%, as both building construction and civil engineering works recorded declines. Services expanded by 0.6%, as subdued performance in wholesale and retail trade and accommodation and food services was more than offset by growth in financial and insurance activities and health and social welfare services.
Meanwhile, real gross domestic income (GDI) rose by 0.8% quarter-on-quarter, exceeding the growth rate of real gross domestic product (GDP), which stood at -0.3%.
- 1) Services include wholesale and retail trade, accommodation and food services, transportation, financial and insurance activities, real estate, information and communications, business services, public administration and defense, social security, education, health and social welfare services, culture, and other services.
- 2) Figures in parentheses ( ) indicate year-on-year growth rates (%).
2. Real Gross Domestic Product in 2025
In 2025, real GDP increased by 1.0% year-on-year. From the expenditure perspective, the contraction in construction investment intensified, while export growth was sustained. At the same time, momentum in private and government consumption strengthened further. From the perspective of economic activity, the downturn in construction deepened and growth in manufacturing moderated, whereas expansion in services and other sectors gained traction. Real gross domestic income (GDI) rose by 1.7%, exceeding the growth rate of real GDP (1.0%).
- 1) Changes in inventories are measured as contributions to GDP growth (%p).
- 2) Services include wholesale and retail trade, accommodation and food services, transportation, financial and insurance activities, real estate, information and communications, business services, public administration and defense, social security, education, health and social welfare services, culture, and other services.
II. Summary of Korea’s Economic and Key Indicator Outlook
According to the Bank of Korea, Korea’s economy is expected to remain under pressure from weak non-IT exports and investment, reflecting the impact of U.S. tariffs. Nevertheless, supported by favorable conditions in the semiconductor sector and a continued recovery in consumption, economic growth is projected to follow the previously anticipated trajectory, reaching 1.8% in 2026.
In 2026, growth is expected to broaden, driven primarily by Korea’s domestic demand, underpinned by sustained improvements in consumption and a gradual easing of the downturn in construction investment. While non-IT exports are projected to remain muted due to U.S. tariff effects, semiconductor exports are expected to maintain strong momentum.
In 2027, the recovery in Korea’s domestic demand is expected to continue, and export growth is projected to strengthen further, supported by improving global economic conditions.
Headline inflation for 2026 is expected to remain broadly in line with earlier projections (CPI: 2.1%, core inflation: 2.0%), supported by subdued international oil prices and government price stabilization measures, despite the impact of the elevated exchange rate.
In 2025, consumer price inflation rose by 2.1%, while core inflation increased by 1.9%, in line with the November forecast. In December, headline inflation eased to 2.3% from 2.4% in the previous month, as continued increases in petroleum product prices were accompanied by a slowdown in agricultural product price growth, resulting in a moderation in the overall pace of inflation.
Looking ahead, headline inflation is expected to gradually decline toward the 2% level and thereafter fluctuate around the inflation target (2.0%). Core inflation is projected to remain broadly stable at around 2% throughout the year.
It should be noted that risks related to movements in the exchange rate and international oil prices remain embedded in the projected inflation path.
The current account balance for this year is expected to record a surplus in line with the previous forecast of USD 130 billion.
In 2025, supported by strong semiconductor exports, the surplus is estimated to have slightly exceeded the initial projection of USD 115 billion.
Although the deficit in the services account is expected to widen due to a slowdown in trade activity and a deterioration in the transportation balance amid declining shipping rates, the goods account is projected to improve significantly, reflecting rising semiconductor prices and falling oil prices. Accordingly, the overall current account surplus is expected to expand compared with the previous year.
The increase in the number of employed persons this year is projected to be in line with the previous forecast of 150,000.
In 2025, employment rose by 193,000 year-on-year, as the services sector maintained solid growth, supported by government job creation policies and improving consumption, despite weakness in the construction and manufacturing sectors.
Public sector employment is expected to increase at a slightly slower pace than in the previous year. In contrast, private sector employment is projected to improve, supported by sustained consumption growth and a gradual easing of the downturn in construction activity, despite constraints stemming from the diffusion of artificial intelligence and weakness in non-IT sectors.
Uncertainty along the forecast path remains elevated, reflecting how households and companies are responding to changes in labor market conditions and ongoing corporate restructuring in certain sectors.