Economic Outline

Economic Indicators

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.

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