S.Korea economy stagnates in Q4 as political crisis drags down 2025 outlook By Reuters

Written by Jihoon Lee

SEOUL (Reuters) – South Korea’s economy barely grew in the fourth quarter of 2024, as the worst political crisis in decades hurt already subdued domestic demand and threatened to continue to slow growth in a year of increasing external risks under Trump’s second presidency.

In December, consumer and business sentiment weakened amid political turmoil, after President Yoon Suk Yeol was impeached and suspended over his short-lived pledge to impose martial law. , followed by the impeachment of Prime Minister Han Duck-soo.

That boost saw gross domestic product (GDP) increase 0.1% from the previous quarter on a year-over-year basis, the Bank of Korea’s advanced estimates showed on Thursday.

It was weaker than the 0.2% increase predicted in a Reuters poll and the 0.5% reported by the central bank a week before Yoon’s Dec. 3 order.

Asia’s fourth-largest economy struggled through 2024, as it avoided a technical recession in the third quarter when it grew 0.1% after a 0.2% contraction in the second.

Worryingly, the BOK and economists expect the political crisis to remain a drag on growth this year.

“Economic sentiment has weakened significantly in relation to political uncertainty, which will continue to affect the economy as a risk factor in the first quarter and throughout the year,” a Bank of Korea official told the interviewer, warning that The growth of this quarter can also be lost by the central bank. November forecast of 0.5%.

Shivaan Tandon, market economist at Capital Economics, agreed: “We suspect that the weakness in activity may continue in the near term due to the ongoing political crisis and the bleak outlook for the construction sector.”

The number of figures fell about 1.1% in morning trading after the release of the data, despite the overnight meeting of Wall Street to the top, when the success was reduced.

SOLUTION THING

In 2024, South Korea’s economy grew by 2.0%, after expanding 1.4% last year, but growth is expected to slow in 2025 to 1.6% or 1.7%, below the estimated potential. of about 2%, according to BOK.

In the October-December quarter, GDP grew 1.2% year-on-year, the slowest pace since the second quarter of 2023.

it was a big mess. Over the quarter, consumer spending rose 0.2% and business investment increased 1.6%, weaker than the previous quarter’s gains of 0.5% and 6.5%, respectively, while construction investment decreased by 3.2%.

Exports rose 0.3%, recovering modestly from a 0.2% fall a quarter earlier, led by sales of semiconductors on strong demand for artificial intelligence, despite concerns that US President Donald Trump’s threats of tariffs against its main trading partners could hit the South. Korean products.

“The result of the fourth part of the GDP on the country will need to find a way to strengthen the domestic economy and negotiate with the United States to reduce the impact of the rate hike,” said Danny Kim, Associate Economist Moody’s. (NYSE: ) Reviews.

ALL EXPECTATIONS

All this meant that policymakers would be under pressure to increase stimulus, economists say.

“We see almost no growth in the first quarter as it is difficult to expect a recovery in domestic demand as exports remain weak,” said Park Sang-hyun, chief economist at iM Securities. .

“The Bank of Korea will definitely cut interest rates in February and will probably have to do so in April,” Park said, expecting the government to make more fiscal plans before the second quarter.

South Korea’s central bank is expected to cut interest rates next month by 25 basis points, and twice this year to 2.25%, after its unexpected decision to hold this month to prevent winning – the weakest among Asian currencies last year – from falling further.

There are also growing calls from economists and opposition lawmakers for the government to draw up an additional budget to support weak domestic demand, with a smaller amount than the Governor of BOK Rhee Chang-yong argued last week.

Finance Minister Choi Sang-mok, who serves as acting president, said earlier this week that the government intends to discuss it with parliament.