South Korea: Economic and Political Overview
Strong economic fundamentals and sound macroeconomic policies have helped South Korea navigate recent challenges, including higher inflation, slower post-pandemic growth, financial market stress, and housing market adjustments. After growing 1.4% in 2023, real GDP rebounded to 2.2% in 2024, driven by strong exports despite weak domestic demand. As domestic demand gradually strengthens and export growth normalizes, growth is expected to moderate to around 2% in 2025 (IMF). In recent decades, South Korea's potential growth has slowed faster than its peers. The country faces structural challenges, including rapid population ageing, shifting global trade patterns, and AI-driven technological changes. In response, authorities have developed a “Dynamic Economy Roadmap” to improve quality of life and economic sustainability through structural reforms. However, growing domestic political uncertainty makes advancing these reforms more challenging.
Despite a significant revenue shortfall, restrained spending resulted in a contractionary fiscal stance in 2023. In 2024, tax revenue continued to underperform, with an expected shortfall of 29.6 trillion won (1.2% of GDP), mainly due to weak corporate profitability in 2023 and lower property market valuations. As a result, despite efforts for fiscal consolidation, the central government's fiscal deficit is projected at 1.5% of GDP in 2024, with the cyclically adjusted primary deficit near the 2023 level (0.7% of GDP), indicating a neutral fiscal stance. The 2025 budget anticipates a rebound in tax revenues and a modest increase in expenditure. The IMF projects the fiscal deficit to decline to 1.2% of GDP, with a cyclically adjusted primary deficit of 0.3% of GDP and a fiscal impulse of -0.4% of GDP. The debt-to-GDP ratio - at 52%.9 last year - is projected to marginally rise to 54.3% in 2025 (IMF). Private credit growth rebounded in 2024, driven by increased housing-related household loans and strong corporate credit. While the private credit-to-GDP ratio remains high, it has moderated, and the credit gap has narrowed. According to official governmental figures, in 2024, the consumer price index stood at 2.3%, following a 3.6% rise in 2023, marking the slowest annual increase in four years. The central bank announced plans for further interest rate cuts in 2025 to support economic growth, after implementing its first back-to-back rate cuts since 2009 at the final policy meeting of 2024. As a result, average inflation in 2025 is expected to stay around 2%, though risks from escalating geopolitical tensions and uncertain policies in major economies remain high.
Unemployment rates in South Korea have shown remarkable resilience, remaining historically low at 2.9% in 2024, compared to 2.7% one year earlier. Labour market conditions have demonstrated relative stability, supported by the country's diversified economic structure and strong export-oriented industries. Looking ahead, unemployment rates are projected to hover around 3%, reflecting potential challenges in sustaining job creation amid evolving economic conditions. Moreover, employment and wage gaps between men and women are among the highest in the OECD and South Korea's fertility rate dropped to 0.72 children per woman in 2023, the lowest globally, posing a serious challenge for the country’s future. South Korea has experienced remarkable success in combining rapid economic growth with significant reductions in poverty. Income per capita is high and stood at USD 65,582 in 2024 (IMF); nevertheless, the poverty rate is particularly high for over-65s, estimated at 38% by the OECD.
| Main Indicators | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) | 2027 (E) |
| GDP (billions USD) | 1,839.06 | 1,869.92 | 1,947.13 | 2,029.48 | 2,114.44 |
| GDP (Constant Prices, Annual % Change) | 1.4 | 2.5 | 2.0 | 2.1 | 2.1 |
| GDP per Capita (USD) | 35,563 | 36,132 | 37,675 | 39,321 | 41,031 |
| General Government Balance (in % of GDP) | -0.6 | -0.5 | -0.1 | 0.0 | 0.0 |
| General Government Gross Debt (in % of GDP) | 51.5 | 52.9 | 54.3 | 55.4 | 56.3 |
| Inflation Rate (%) | 3.6 | 2.5 | 2.0 | 2.0 | 2.0 |
| Unemployment Rate (% of the Labour Force) | 2.7 | 2.9 | 3.0 | 3.0 | 3.0 |
| Current Account (billions USD) | 35.49 | 72.01 | 70.09 | 74.43 | 89.54 |
| Current Account (in % of GDP) | 1.9 | 3.9 | 3.6 | 3.7 | 4.2 |
Source: IMF – World Economic Outlook Database, October 2021
South Korea has experienced one of the largest economic transformations of the past 60 years. Given its limited geographical size, insufficient natural resources and population size (a labour force of 29.58 million people out of its 51.71 million population), the country has devoted special attention to technology development and innovation to promote growth, growing from a predominantly rural, agricultural nation into an urban, industrialized country. Nowadays, industry represents 31.6% of the GDP and employs 24% of the workforce (World Bank, latest data available). South Korea has emerged as a global leader in various industries, thanks to strategic government policies, heavy investments in research and development, and a skilled workforce. The main industries include textile, steel (with POSCO being among the world's largest steelmakers), car manufacturing, shipbuilding and electronics (South Korea is the world's second-largest producer of semiconductors, which represents its main export). According to Statistics Korea (KOSTAT), the industrial production index (excluding agriculture, forestry, and fisheries) rose 1.7% in 2024. Manufacturing output increased, with chip and pharmaceutical production up 1.4%, despite declines in electrical equipment and primary metals. Facility investment grew 4.1%, driven by a 2.9% rise in semiconductor machinery and a 7.8% increase in transportation equipment.
The agricultural sector in South Korea only makes a negligible contribution to the country's GDP (1.6%) and employs only 5% of the active population (World Bank). Rice is the main agricultural crop; barley, wheat, corn, soybeans and sorghum are extensively cultivated. The sector also includes large-scale livestock farming. Less than one-fourth of the land is cultivated and the country depends heavily on imports for food, sourcing about 70% of its agricultural and food products from abroad. South Korea's mineral resources are limited to gold and silver. Official statistics show that rice production in 2024 totalled 3.585 million tons, down 3.2% from 2023. The cultivated area decreased by 1.5%, from 708 thousand hectares in 2023 to 698 thousand hectares in 2024. Moreover, South Korea's exports of agricultural and related products hit a record high in 2024, rising 6.1% from the previous year to USD 13 billion, driven by strong demand for instant noodles and processed rice products.
The service sector is the largest and fastest economic segment, accounting for 58.4% of GDP and employing 71% of the active population (World Bank). Tourism is one of the leading subsectors, comprising around 3.8% of the country's total economic output (data WTTC). In 2024, South Korea welcomed 16.37 million foreign visitors, up 48.4% from 2023 and reaching 94% of the 2019 level. The country also has a highly developed and profitable financial services sector, hosting Asia's third-largest insurance and banking markets. Service sector output rose 1.4% in transportation, warehousing, finance, and insurance, but fell in wholesale and retail. The retail sales index fell 2.2% in the same period (KOSTAT).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 5.3 | 24.0 | 70.7 |
| Value Added (in % of GDP) | 1.6 | 31.6 | 58.4 |
| Value Added (Annual % Change) | -2.4 | 1.1 | 2.1 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
Find more information about your business sector on our service Market reports.
Find out all the exchange rates daily on our service International currency converter.
The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025
Any Comment About This Content? Report It to Us.
© eexpand, All Rights Reserved.
Latest Update: February 2025
