2025 S Korea’s economy grew in Q4 as the political crisis eased.

By Jihoon Lee

SEOUL (Reuters) – South Korea’s economy grew sharply in the fourth quarter of 2024, as the country’s worst political crisis hurts domestic demand that has already been weakened for decades and threatens even juicier growth in a year where external risks have increased during Trump’s second term.

In December, consumer and business sentiment cooled amid political turmoil, following the impeachment and impeachment of President Yoon Suk-yeol over his brief bid to impose martial law and the impeachment of Prime Minister Han Dak-soo.

That impact widened to just 0.1% on a seasonally adjusted basis from a quarter earlier, the Bank of Korea’s top estimate showed on Thursday.

That was weaker than a 0.2% rise forecast in a Reuters poll and 0.5% weaker than the central bank’s planned 0.5% rise, less than a week after Yon’s Dec. 3 martial law declaration.

Asia’s fourth-largest economy struggled in 2024, growing 0.1% in the third quarter, narrowly avoiding a technical slump, following a 0.2% contraction in the second.

Worryingly, the BOK and economists expect the political crisis to dampen growth this year as well.

“Economic sentiment on political instability has weakened significantly, which will continue to be a risk factor for the economy in the first quarter and throughout the year,” said a Bank of Korea official in an interview. November forecast 0.5%.

Shivan Tandon, market economist at Capital Economics, said: “We suspect that the weakness in activity will continue in the near term due to the ongoing political crisis and the negative outlook for the construction sector.

Wall Street’s overnight rally hit a record high, with the morning trade benchmark falling as much as 1.1% after the data release, paring gains.

Trump factor

In the year South Korea’s economy grew by 2.0% in 2024, up from 1.4% a year ago, but Growth is forecast to slow to 1.6% or 1.7% in 2025, below potential of around 2%, according to the BOK.

In the October-December quarter, gross domestic product grew 1.2 percent annually, the slowest pace since the second quarter of 2023.

It was a big drag. In the quarter, consumer spending rose 0.2% and corporate investment grew 1.6%, weaker than the previous quarter’s 0.5% and 6.5%, while construction investment fell 3.2%.

Exports rose 0.3% after a 0.2% fall in the previous quarter, led by sales of semiconductors and artificial intelligence in strong demand, despite concerns that US President Donald Trump’s threat of tariffs on major trading partners could hurt the South. Korean installations.

“The sub-fourth quarter of GDP is concerning, and the country needs to find ways to strengthen the domestic economy and negotiate with the US to limit tariff increases,” said Moody’s Assistant Economist Danny Kim. (NYSE: ) Analysis.

More stimulation is expected

All this means policymakers will be under pressure to ramp up the stimulus, economists say.

“We are not seeing any growth in the first quarter, as it is difficult for domestic demand to recover while exports are weakening,” said Park Sang-hyun, chief economist at IM Securities.

The Bank of Korea will certainly cut interest rates in February, expecting the government to prepare a supplementary budget early in the second quarter, he said, and may have the same in April.

South Korea’s central bank lowered interest rates by 25 basis points next month, and twice more this year to 2.25%, after an unexpected rate-holding decision this month to prevent wins – which was the weakest among Asian currencies last year. More from falling.

There are growing calls from economists and opposition lawmakers for the government to budget more to support weak domestic demand.

Finance Minister Choi Sang-mok, who serves as acting president, said earlier this week that the government was willing to hold talks with parliament.