Korean Economy
Korea’s GDP Growth in the Second Quarter of 2025
In the second quarter of 2025, real gross domestic product (GDP) grew by 0.6% quarter-on-quarter and by 0.5% year-on-year.
GDP Growth (2021-2025.2Q)
(Unit: %)
(Source: Bank of Korea, July 24, 2025)
Private consumption rose 0.5%, driven by increases in goods such as passenger vehicles and services such as leisure and cultural activities. Government consumption expanded by 1.2%, largely reflecting higher National Health Insurance benefit payments.
Construction investment fell 1.5% as both building and civil engineering works declined. Facility investment also dropped 1.5%, weighed down by reduced spending on machinery, including semiconductor manufacturing equipment, and on transportation equipment, including vessels.
Exports climbed 4.2% on higher shipments of semiconductors and petroleum and chemical products. Imports rose 3.8%, led by energy products such as crude oil and natural gas.
< Quarterly Economic Growth >
(Unit: %)
*Figures in ( ) refer to year-on-year growth rates.
(Source: Bank of Korea, July 24, 2025)
In the second quarter of 2025, real gross domestic income (GDI) increased 1.3% quarter-on-quarter and 1.4% year-on-year, exceeding real GDP growth of 0.6%.
As of the end of June 2025, Korea’s foreign exchange reserves stood at USD 410.2 billion, up USD 5.6 billion from USD 404.6 billion at the end of last month, due to an increase in the U.S. dollar conversion value of non-dollar foreign assets from dollar depreciation as well as higher investment income.
Benchmark Interest Rate Outlook
The Bank of Korea’s Monetary Policy Board decided to keep the base rate unchanged at 2.50% per annum, marking the first hold decision following a series of rate cuts (as of July 10). The base rate had been lowered from 3.50% to 3.25% in October 2024, from 3.25% to 3.00% in November 2024, to 2.75% in February 2025, and to 2.50% in May 2025.
The Korean economy is projected to remain on a modest growth path, with inflation showing signs of stability amid heightened uncertainty related to trade negotiations. At the same time, given the pronounced increase in housing prices in the Seoul metropolitan area and the continued accumulation of household debt, as well as the need to assess the impact of recently strengthened household debt measures, the decision was made to maintain the current policy rate.
BOK Benchmark Interest Rate (2011-2025)
(Unit: %)
(Source: Bank of Korea, July 10, 2025)
The Monetary Policy Board will continue to conduct monetary policy with a view to ensuring that inflation remains stable at the target level over the medium term, while also paying due attention to financial stability as it monitors the growth trajectory. The Korean economy is expected to remain on a low-growth path for the time being, with inflation staying stable amid considerable uncertainty related to trade negotiations. From a financial stability perspective, as risks in the Seoul metropolitan housing market and household debt have increased, it is important to assess the effectiveness of macroprudential policies while remaining vigilant against potential volatility in the foreign exchange market. Accordingly, monetary policy going forward will maintain an easing stance aimed at mitigating downside risks to growth, while carefully assessing changes in domestic and external policy conditions, inflation developments, and financial stability in determining the timing and pace of any further policy rate reductions.
Economic Landscape for 2025
The Korean economy saw a continued decline in construction investment, but growth weakness eased somewhat as consumption improved, supported by the easing of domestic political uncertainty and other conditions, and as export growth continued. Employment expanded in terms of total jobs, although key sectors such as manufacturing continued to decline. Looking ahead, consumption is expected to gradually recover supported by improved economic sentiment, a supplementary budget, and other measures, while exports are projected to slow due to U.S. tariff actions and related developments. However, the future growth path remains highly uncertain, reflecting risks stemming from U.S. trade negotiations and the pace of domestic demand recovery.
In June, the Korean consumer price inflation rate rose to 2.2%, driven by continued increases in processed food prices and base effects from agricultural and petroleum product prices. However, the core inflation rate (excluding food and energy) remained at 2.0%, the same as the previous month, while short-term inflation expectations fell to 2.4% from 2.6% in the prior month. Looking ahead, consumer price inflation is expected to remain around 2%, reflecting low demand-side pressures, stable international oil prices, and other contributing conditions. Accordingly, consumer price and core inflation for the year are projected to be broadly in line with the May forecasts (1.9% each). The future inflation path is likely to be influenced by domestic and global economic conditions, movements in the exchange rate and international oil prices, and government measures aimed at price stability.
The current account surplus for 2025 is expected to exceed the USD 82 billion projected in April 2025. In the second quarter, the surplus is assessed to have significantly exceeded the previous forecast, reflecting robust semiconductor exports supported by stronger-than-expected AI investment and front-loaded demand in anticipation of potential item-specific tariff impositions. However, in the second half of the year, the surplus is projected to narrow compared with the first half as the impact of U.S. tariff policies gradually takes full effect.
In the global economy, growth momentum is expected to gradually slow as the impact of elevated tariff rates takes hold amid continued uncertainty in the trade environment, with inflation paths likely to diverge across countries. In international financial markets, easing tensions in the Middle East and partial progress in U.S.–China trade negotiations have reduced risk aversion, leading to a sharp rise in major equity markets. U.S. long-term Treasury yields edged lower on renewed expectations of Federal Reserve rate cuts, while the U.S. dollar continued its weakening trend. Going forward, the global economy and international financial markets are expected to be influenced by the outcomes of tariff negotiations between the United States and major economies, as well as changes in the monetary policies of key countries.