Economic Outline

Economic Indicators

South Korea, a developed economy renowned for its dynamic export sector, has weathered various economic challenges while maintaining its growth trajectory. In 2023, GDP growth moderated to 1.4%, down from 2.6% in 2022, primarily due to factors such as elevated interest rates and energy prices, which dampened private consumption and investment. Despite these obstacles, the semiconductor sector showed signs of recovery, hinting at a potential economic resurgence. Projections indicate a rebound in growth to 2.3% in 2024 and 2.1% in 2025, driven by renewed export and investment activities, especially in semiconductors. These figures underscore South Korea's ability to adapt and thrive amid changing global economic landscapes.

In fiscal terms, South Korea witnessed a narrowing fiscal deficit in 2023, with the consolidated deficit decreasing to 1.1% of GDP, influenced by expenditure reductions. However, revenue collection faced challenges, with a 10.1% drop in the year to August, attributed to weak corporate performance, particularly in the semiconductor sector, and declining property capital gains tax. To address a revenue shortfall of KRW 59.1 trillion (2.6% of GDP) in 2023, the government utilized public funds, including KRW 20 trillion from the FX stabilization fund, to bridge the gap rather than resorting to additional deficit financing. The forecasted consolidated deficit for 2024 stands at 0.8% in line with the government's budget proposal, although revenue performance remains weak. Despite restrained spending growth of 2.8% relative to the 2023 budget, fiscal deficits are expected to persist, signalling the government's commitment to fiscal prudence amid revenue challenges. Looking ahead, the administration aims for modest medium-term deficits, anticipating a decrease to 0.2% of GDP in 2025. Nevertheless, the debt-to-GDP ratio - at 54.3% last year - is projected to marginally rise to 56.5% by 2025. Inflation in 2023 moderated considerably, dropping to 3.4%, with further decline anticipated to 2.3% in 2024, reflecting gradual stabilization and adjustment in the economy. Monetary policy is expected to maintain stability, as indicated by the Bank of Korea's policy rate at 3.5% since January 2023. Household borrowing trends remain concerning, despite a slight decline to 101.7% of GDP in 2Q23 from its peak in 2Q22, raising the potential for increased debt burdens. Nevertheless, financial sector risks appear manageable, with banks well-positioned to navigate potential pressures, supported by strong underwriting standards and macroprudential measures.

 
South Korea has experienced remarkable success in combining rapid economic growth with significant reductions in poverty. Income per capita increased from USD 100 in 1963 to more than USD 56,709 in 2023 (IMF). Unemployment rates in South Korea have shown remarkable resilience, remaining historically low at 2.7% in 2023, despite weakened demand and occasional shocks. 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 increase slightly to 3.2% in 2024 and 3.3% in 2025, reflecting potential challenges in sustaining job creation amid evolving economic conditions. However, despite these projections, South Korea's labour market remains robust, indicating a steady employment environment amidst ongoing economic changes. In the medium and longer terms, however, South Korea will spend more on preparing measures to tackle the low birth rate, elderly poverty and low employment among women.

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