Synopsis
The South Korean economy has recorded its first quarterly contraction in nine months, declining by 0.2% in Q1 2025, influenced by political instability and uncertainties from U.S. tariff policies. The Bank of Korea had expected growth, but unexpected factors like project suspensions and decreased exports contributed to this downturn.Key Takeaways
- South Korea's GDP contracted 0.2% in Q1 2025.
- Political chaos and U.S. tariff uncertainties are impacting growth.
- Exports fell by 1.1%, primarily in chemicals and machinery.
- Facility investment decreased by 2.1%, and construction investment by 3.2%.
- Private and government spending also saw declines.
Seoul, April 24 (NationPress) The South Korean economy experienced a decline in growth compared to three months prior during the first quarter, marking the first quarterly contraction in nine months, as revealed by central bank data on Thursday. This downturn occurred amid a domestic political crisis and uncertainties linked to the Donald Trump administration's extensive tariff policies.
The nation’s real gross domestic product (GDP) — a crucial indicator of economic health — shrank by 0.2 percent in the January-March timeframe compared to the previous quarter, according to preliminary statistics from the Bank of Korea (BOK).
In a year-on-year comparison, the economy saw a contraction of 0.1 percent in the first quarter of 2025, contrasting with a 1.2 percent expansion in the preceding quarter, as reported by the Yonhap news agency.
As the fourth-largest economy in Asia, South Korea expanded by 1.3 percent in the first quarter of 2024 but fell into contraction in the second quarter with a 0.2 percent decline, followed by minimal growth of 0.1 percent in both the third and fourth quarters.
In its February forecast, the BOK had anticipated a 0.2 percent growth in the first quarter.
“Prolonged uncertainty in domestic politics and increasing global trade risks stemming from U.S. tariff policies have hindered the recovery of consumer and investment confidence,” stated BOK official Lee Dong-won during a press briefing.
“Unusual factors, such as postponed demand for high-performance semiconductors, halted projects at various construction sites, and significant wildfires, have also contributed to the downward pressure on economic growth,” he added.
Exports fell by 1.1 percent from the previous quarter in the first quarter, primarily due to reduced shipments of chemicals, machinery, and equipment.
Facility investment saw a 2.1 percent decrease quarter-on-quarter, while construction investment plunged by 3.2 percent.
Private spending declined by 0.1 percent in the first quarter, largely due to diminished demand for services, and government expenditure also edged down by 0.1 percent.
The unexpected negative growth was further exacerbated by the shocking declaration of martial law by former President Yoon Suk Yeol on December 3, which created political chaos and negatively impacted consumer spending. Yoon was removed from office on April 4.
The sweeping tariffs from the U.S. have also impacted the trade-centric South Korean economy. Trump had announced “reciprocal” tariffs that included a 25 percent tariff for South Korea, although he later postponed its implementation for 90 days.
In addition to the reciprocal tariffs, auto and steel tariffs are already enforced.
The BOK had previously projected a 1.5 percent growth outlook for the South Korean economy in 2025 but indicated last week that this forecast may be “too optimistic,” considering Trump’s tariff policies, including sector-specific tariffs and levies on China.
“A swift recovery in domestic demand appears challenging, yet there is potential for a slight improvement in private consumption in the second quarter,” BOK official Lee noted, referencing reduced political uncertainty following Yoon’s impeachment and the BOK’s combined 0.75 percentage point rate cuts since October.
