South Korean Growth Sluggish in Q4 as Political Tensions Weigh

The South Korean economy saw minimal growth in the last quarter (Q4) of 2024 as political instability hurt consumer spending, according to a Reuters poll of economists. Many experts expect the Bank of Korea (BOK) to reduce interest rates next month, following a surprising decision to hold rates steady last week.

Asia’s fourth-largest economy faced headwinds from President Yoon Suk Yeol’s brief martial law attempt on Dec. 3, which weakened domestic demand and overshadowed the recovery in exports. While South Korea’s economy grew by just 0.1% in the July-September period, economists expect a modest 0.2% expansion in Q4.

On an annual basis, the economy likely grew 1.4% in the last quarter, nearly unchanged from the 1.5% growth seen in Q3, based on the forecasts of 25 economists polled between Jan. 15-20.

South Korean Growth Sluggish in Q4 as Political Tensions Weigh

“We expect Q4 GDP data to show lackluster growth,” said Krystal Tan, an economist at ANZ, adding that domestic demand was particularly weak in December due to political turmoil.

Exports, however, rose 6.6% year-on-year in December, with semiconductor exports surging by 31.5%.

The BOK’s unexpected decision to keep rates unchanged on Jan. 16 aimed to stabilize the Korean won, which fell by over 12% last year. While the currency has recovered slightly since the decision, investor confidence remains shaky amid political concerns.

All 25 economists surveyed in a Reuters snap poll expect the BOK to lower rates by 25 basis points in February, with a total cut of 75 basis points anticipated by the end of Q3.

BOK Governor Rhee Chang-yong has indicated that a rate cut is possible, as the central bank keeps an eye on political developments and economic indicators. The BOK has also lowered its 2025 growth forecast from 1.9% to 1.6% to 1.7%, further supporting expectations for a rate reduction.

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