South Korea’s economy unexpectedly shrank in Q4 as weak investment and exports overwhelmed modest gains in consumption.
Summary:
-
South Korea GDP contracts 0.3% q/q in Q4
-
Biggest quarterly contraction since late 2022
-
Investment and exports drag heavily on growth
-
Consumption offers only modest support
-
Full-year growth slows to 1.0% in 2025
South Korea’s economy unexpectedly contracted in the final quarter of 2025, delivering its sharpest quarterly downturn in three years and underscoring growing headwinds from weak investment, soft trade flows and fragile domestic demand.
Advance estimates from the Bank of Korea showed gross domestic product shrank 0.3% quarter-on-quarter on a seasonally adjusted basis in the October–December period, sharply missing market expectations for a 0.1% expansion. The contraction followed a strong 1.3% rebound in the third quarter, highlighting increased volatility in growth momentum toward year-end.
On an annual basis, GDP grew 1.5% year-on-year, slowing from 1.8% in the previous quarter and undershooting forecasts for a 1.9% rise. The Q4 outcome marked the weakest quarterly performance since late 2022 and capped a year of slowing expansion for Asia’s fourth-largest economy.
The breakdown of activity pointed to broad-based weakness. Facility investment fell 1.8% q/q, reflecting subdued corporate spending amid elevated borrowing costs and lingering uncertainty over global demand. Construction investment dropped 3.9% q/q, extending a prolonged downturn in the property and infrastructure sectors. External demand also weighed heavily, with exports declining 2.1% q/q and imports down 1.7% q/q, signalling both softer global trade conditions and weaker domestic absorption.
Private consumption offered only limited support, rising a modest 0.3% q/q, suggesting households remain cautious despite easing inflation pressures. Analysts noted that the consumption lift was insufficient to offset sharp declines in investment and trade.
For 2025 as a whole, South Korea’s economy expanded 1.0%, down from 2.0% growth in 2024 and marking the slowest annual growth rate since 2020. The weaker trajectory adds to challenges facing policymakers as they balance growth support against financial stability risks, particularly with global demand uneven and domestic investment yet to show sustained recovery.
