Korean Economy
Korea’s GDP Growth in the Fourth Quarter of 2024
In the fourth quarter of 2024, the Korean economy grew by 0.1% quarter on quarter and 1.2% year on year. For the full year of 2024, the economy expanded by 2.0% compared to the previous year.
GDP Growth (2021-2024)
(Unit: %)
(Source: Bank of Korea, Jan. 23, 2025)
Private consumption edged up by 0.2%, driven by increased spending on semi-durable goods, such as clothing and footwear, as well as services, including healthcare and education. Government consumption expanded by 0.5%, primarily due to higher in-kind social benefits, notably health insurance reimbursements. Construction investment contracted by 3.2%, reflecting declines in both building construction and civil engineering projects. In contrast, facility investment rose by 1.6%, led by increased capital expenditures on machinery, particularly semiconductor manufacturing equipment. Exports grew by 0.3%, supported by strong demand for IT products, including semiconductors. Meanwhile, imports declined by 0.1%, weighed down by lower inbound shipments of automobiles and crude oil.
Quarterly Economic Growth
(Unit: %)
*Figures in ( ) refer to year-on-year growth rates.
(Source: Bank of Korea, Jan. 23, 2025)
In 2024, real gross domestic income (GDI) grew by 0.6% in the fourth quarter, following a 2.4% increase in the first quarter, a 1.2% decline in the second quarter, and a 0.5% rise in the third quarter. This outpaced the real GDP growth rate of 0.1% in the fourth quarter. For the full year of 2024, real GDI expanded by 3.9% compared to the previous year.
As of the end of December 2024, Korea’s foreign exchange reserves stood at USD 415.6 billion, marking an increase of USD 210 million from the previous month. Despite a decline in the U.S. dollar-converted value of non-USD foreign currency assets due to the appreciation of the U.S. dollar (with the U.S. dollar index rising approximately 2.0% in December) and measures to stabilize foreign exchange market volatility, the increase was driven by quarter-end effects, including higher foreign currency deposits held by financial institutions and investment income. As of the end of November 2024, Korea ranked ninth globally in terms of foreign exchange reserves.
Benchmark Interest Rate Outlook for 2025
At its meeting on January 16, 2025, the Monetary Policy Board decided to maintain the Bank of Korea’s policy rate at the current level of 3.0% until the next policy decision. The policy rate had been lowered from 3.5% to 3.25% in October 2024, followed by a further reduction to 3.0% in November 2024. The latest decision reflects the central bank’s stance to keep the rate steady at this level.
With inflation stabilizing and household debt growth slowing, the expansion of unexpected political risks has heightened downside risks to economic growth and increased exchange rate volatility. Given the rising uncertainty surrounding economic forecasts and foreign exchange markets due to political developments in Korea and shifts in major economies' policy directions, the Monetary Policy Board has deemed it appropriate to maintain the current policy rate while closely monitoring evolving domestic and external conditions.
BOK Benchmark Interest Rate (2010-2025)
(Unit: %)
(Source: Bank of Korea, Jan. 16, 2025)
The Monetary Policy Board will continue to monitor economic growth while ensuring that inflation stabilizes at the target level over the medium term, all while maintaining financial stability. Accordingly, future monetary policy decisions will be guided by a thorough assessment of political developments in Korea, changes in global and Korean economic policies, and their impact on inflation, household debt, and exchange rate movements. The Monetary Policy Board will carefully determine the timing and pace of any further rate cuts to mitigate downside risks to growth.
Economic Landscape for 2025
The Korean economy is expected to experience a significant slowdown in export growth compared to the previous year. Additionally, heightened political uncertainties are weighing on market sentiment, leading to weaker consumption and construction investment. As a result, economic growth in 2025 is projected to fall below previous forecasts. Looking ahead, the growth trajectory will largely depend on several key factors, including the trade and industrial policies of major economies, responses from neighboring countries, domestic political developments, and the timing of government stimulus measures. The implementation and pace of fiscal policies, such as supplementary budgets, will also play a crucial role in shaping the economic outlook.
Inflationary pressures are expected to remain broadly in line with previous projections (CPI: 1.9%, Core CPI: 1.9%) as upward factors, such as a weak Korean won and rising oil prices, are offset by subdued demand pressures and government-led price stabilization measures. In 2024, consumer prices rose by 2.3%, while core inflation reached 2.2%, aligning with prior forecasts. In 2025, consumer price inflation is projected to rise to around 2.0% early in the year before gradually easing and fluctuating in the high 1% range. In the latter half of the year, inflation is expected to stabilize near the target level. Core inflation is also forecast to remain steady, hovering close to 2.0% throughout the year. However, uncertainty has increased due to fluctuations in exchange rates and oil prices, the timing and magnitude of public utility fee hikes, and domestic demand conditions.
The current account balance for this year is expected to align with initial projections. The 2024 current account surplus is anticipated to exceed the November forecast of USD 90 billion. Going forward, the surplus is projected to gradually narrow as export growth slows while imports see a moderate increase.
The global economy is expected to experience a moderate slowdown, considering the impact of U.S. tariff policies and other factors. Additionally, with the Federal Reserve’s slower-than-expected pace of rate cuts, downside risks to growth have somewhat increased. The United States is projected to maintain solid growth, led by domestic demand, though policy uncertainty under the new administration remains high. The Eurozone is likely to see a weaker-than-expected recovery due to continued economic sluggishness in major economies and political instability. In China, weak domestic demand and escalating trade tensions are exerting significant downward pressure on growth, but aggressive stimulus measures are expected to provide some buffer.