South Korea’s economy barely grew in the fourth quarter of last year as the country’s worst political crisis in decades hurt already weakened domestic demand and threaten to further sap growth in a year of rising external risks.
Last month, consumer and business sentiment dampened amid political chaos after South Korean President Yoon Suk-yeol was impeached and suspended from duties over his short-lived bid to impose martial law, followed by the impeachment of South Korean Prime Minister Han Duck-soo.
That impact saw GDP expand just 0.1 percent from a quarter earlier on a seasonally adjusted basis, the Bank of Korea’s advanced estimates showed yesterday.
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It was weaker than increases of 0.2 percent forecast in a Reuters survey and 0.5 percent projected by the central bank less than a week before Yoon’s Dec. 3 martial law edict.
Asia’s fourth-largest economy struggled through last year, having narrowly avoided a technical recession in the third quarter when it grew 0.1 percent following a 0.2 percent contraction in the second.
The Bank of Korea and economists expect the political crisis to remain a dampener on growth this year, too.
“Economic sentiment weakened significantly on political uncertainty, which will continue to affect the economy as a risk factor in the first quarter and throughout the year,” a Bank of Korea official told a briefing, warning that this quarter’s growth could also miss the central bank’s November forecast of 0.5 percent.
Shivaan Tandon, markets economist at Capital Economics, concurred.
“We suspect that the weakness in activity could persist in the near term due to the ongoing political crisis and the bleak outlook for the construction sector,” Tandon said.
The South Korean economy grew 2.0 percent last year after expanding 1.4 percent the year before, but growth is projected to slow this year to 1.6 percent or 1.7 percent, below the estimated potential of about 2 percent, the central bank said.
In the October-December quarter, GDP grew 1.2 percent on an annual basis, the slowest pace since the second quarter of 2023.
Consumption was a major drag. Over the quarter, consumer spending rose 0.2 percent and corporate investment grew 1.6 percent, weaker than the previous quarter’s gains of 0.5 percent and 6.5 percent respectively, while construction investment fell 3.2 percent.
Exports rose 0.3 percent, making a modest recovery after their fall of 0.2 percent a quarter earlier, led by sales of semiconductors on robust demand for artificial intelligence, although there are worries that US President Donald Trump’s tariff threats could hit South Korean shipments.
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