On Thursday, South Korea released its advance Q4 GDP figure, which fell short of expectations, as sluggish performance in consumption and the construction industry led to a year-on-year growth rate dipping to a six-quarter low of 1.2%.
The figure missed the economists’ projected 1.4% expansion, showing weaker growth compared to the 1.5% increase observed in the third quarter of 2024.
Quarter-on-quarter GDP also showed lackluster 0.1% growth in contrast to the 0.2% anticipated in the Reuters poll. Meanwhile, the full-year figure exhibited a 2% growth compared to 2023’s 1.4%.
The Bank of Korea (BOK) stated that, while private consumption growth and investment in the construction sector waned in 2024, government consumption, facility investment, and export growth witnessed an increase.
Growth in the services and construction industry experienced a decline, but the manufacturing industry is flourishing at a faster pace compared to 2023.
Shivaan Tandon, markets economist at Capital Economics, noted after the GDP release that the ongoing political crisis and a grim outlook for the construction sector may contribute to continued weakness in economic activity in the near future.
He added that weakening domestic demand continued to weigh the economy down, while also pointing out the slow sequential growth in consumer spending to just 0.2% from 0.5% in Q3.
Tandon anticipated South Korea to show an economic growth rate of 1.1% for this year, significantly lower than the Bank of Korea’s latest forecast of 1.6%-1.7% growth projected for 2025.
The South Korea’s central bank recently made two unexpected moves with one being a 25 bps rate cut in late November. The bank then subsequently decided to hold rates during its January 16 meeting, maintaining the policy rate at 3%.
In addition, consumer sentiment in South Korea plummeted in December following the brief imposition of martial law by the impeached President Yoon Suk Yeol.
The consumer sentiment index nosedived to 88.4, the lowest since November 2022, indicating a shift towards economic pessimism among consumers.
The index had previously been at 100.7 in November. Although it recovered slightly to 91.2 in January, it remained below the 100 threshold that distinguishes consumer optimism from pessimism.
