South Korea’s Q4 2024 GDP Growth Misses Expectations Amid Political Crisis

South Korea’s economy barely expanded in Q4 2024, with GDP growing just 0.1% quarter-on-quarter, missing the 0.2% forecast, according to the Bank of Korea. Domestic demand struggled due to the nation’s most severe political crisis in decades, which dampened consumer and business sentiment.

President Yoon Suk Yeol’s impeachment in December, following his failed martial law attempt, and the impeachment of Prime Minister Han Duck-soo, heightened uncertainty. Consumer spending rose a modest 0.2%, while corporate investment grew 1.6%, both slower than the previous quarter. Construction investment fell 3.2%, reflecting a downturn in the sector.

Exports rebounded slightly, up 0.3% after a 0.2% decline, driven by robust semiconductor demand for artificial intelligence. However, annualized GDP growth slowed to 1.2% in Q4, the weakest since Q2 2023, while full-year growth reached 2.0%, up from 1.4% in 2023. The Bank of Korea forecasts 2025 growth to slow to 1.6%-1.7%, below the potential rate of 2%.

Economists expect the central bank to cut interest rates by 25 basis points next month and twice more this year, aiming to support the won, which weakened sharply in 2024. Calls for a supplementary budget to boost domestic demand are growing, with acting President and Finance Minister Choi Sang-mok expressing willingness to engage parliament on the issue.

Market analysts warn that ongoing political instability and a bleak construction outlook could weigh on economic activity in the near term, emphasizing the need for fiscal and monetary intervention.

This slowdown highlights the challenges facing Asia’s fourth-largest economy amid domestic and global uncertainties.