South Korea’s economy has recorded its slowest growth in half a decade, with a growth rate of 1% in 2025, according to the country’s central bank. This slowdown is attributed to sluggish demand, a troubled housing market, and the aftermath of the former president’s martial law declaration, which led to political instability. The last time the economy experienced such a slow growth was in 2020, when it contracted due to the COVID-19 outbreak.
Despite this, exports have shown a positive trend, rising by 4.1% due to a boom in artificial intelligence. The central bank noted that the growth of private consumption and government consumption also expanded. However, a decline in construction investment has widened, linked to persistent issues in the real estate market. The manufacturing sector also experienced slowed growth.
The economy contracted in the October-December period, which was expected due to the base effect from strong growth in the third quarter. Weak construction investment also played a role in dragging down overall growth. The central bank had projected a 1.8% growth rate for this year, citing a recovery in domestic demand and a robust semiconductor cycle.
South Korea is a key player in the global semiconductor industry, with major manufacturers like Samsung Electronics and SK hynix. The demand for semiconductors has been driven by the growth of the artificial intelligence market, and this has had a positive impact on the country’s exports. The benchmark index Kospi broke 5,000 for the first time, driven mainly by the performance of semiconductor manufacturers.
The growth of the semiconductor sector is expected to continue, with analysts predicting robust earnings. The central bank’s report highlights the importance of the semiconductor industry to South Korea’s economy, and the need for the government to address the challenges facing the construction and real estate sectors. As the country looks to recover from its slow growth, the performance of the semiconductor sector will be closely watched.
