South Korea’s GDP Contracts in Q4 As Demand Weakens

South Korea’s economy contracted in the final quarter of 2025, reflecting weakening demand across key sectors. The Bank of Korea reported that GDP declined 0.3% in the three months ending in December compared to the previous quarter.

While full‑year projections indicate 1% growth for 2025, the latest quarterly downturn highlights mounting challenges for policymakers. The slowdown comes amid rising financial risks, a fragile currency and persistent pressures in the property market.

Slowing Growth Signals Broader Economic Strain

The latest GDP figures show that South Korea’s earlier growth drivers have begun to lose momentum. Recovering consumption, stronger net exports and expansionary fiscal policies supported output earlier in 2025, but these effects moderated toward the year’s end.

Policymakers face limited room for intervention due to concerns surrounding financial stability and the weakening won. The contraction reflects the country’s struggle to balance short‑term economic pressures with long‑term risk management.

Property Market Pressures and Financial Stability Risks

Housing continues to present a major pressure point in the domestic economy. Flat prices in Seoul rose for the 50th consecutive week as of January 12, underscoring persistent demand in the capital’s property market.

The Korea Real Estate Board noted that government attempts to cool the market have not slowed price growth. Regulators remain cautious about loosening restrictions due to fears of rising household debt and broader financial instability.

Weak Consumption and Investment Reflect Waning Momentum

Private consumption growth eased significantly during the quarter, rising only 0.3% after a 1.3% increase in the previous period. Government spending also grew marginally at 0.6%, reflecting limited fiscal uplift.

Investments showed further signs of slowdown, with facility investments falling 1.8% and construction investment declining 3.9%. The waning effects of earlier stimulus measures contributed to softer domestic demand across sectors.

Trade Conditions Support External Balance Despite Q4 Dip

Although net exports declined 2.1% in the December quarter after rising by 2.1% in the preceding period, exports supported South Korea’s external balance through most of the year. The country recorded a current‑account surplus of nearly $118 billion in 2025, helped by declining energy prices and rising semiconductor prices.

The government expects the surplus to increase to about $135 billion by 2026. Despite the late‑year slowdown, external conditions provided a buffer against domestic economic weakness.

Read More: Indian Railways Asked to Restructure Growth Plans.

Conclusion

South Korea’s 0.3% GDP contraction in the December quarter highlights the economic headwinds facing the country at the end of 2025. Slowing consumption, declining investment and persistent property market pressures contributed to the downturn.

While exports largely supported the external balance throughout the year, the quarterly decline underscores easing global demand. Policymakers remain focused on managing financial risks amid expectations of modest 1% growth for 2025.

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