The Seoul skyline.
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South Korea’s fourth-quarter GDP missed estimates Thursday, with weakness in consumption and the construction sector driving growth to a six-quarter low of 1.2%, year on year.
Advance figures missed the 1.4% expansion expected by economists polled by Reuters, and the growth was also softer compared with the 1.5% rise seen in the third quarter of 2024.
On a quarter-on-quarter basis, GDP growth also missed expectations, with the economy growing just 0.1% compared to the 0.2% forecast in the Reuters poll.
However, full-year GDP growth for 2024 came in at 2% compared with last year’s 1.4% gain.
The South Korean won weakened 0.13% to 1,436.4, while the country’s benchmark stock index Kospi fell 0.47%.
The Bank of Korea said that in 2024, private consumption growth fell and investment in the construction sector declined, but government consumption, facility investment, and exports growth rose.
The BOK also said that growth in the services as well as construction industry decreased, but manufacturing industry grew at a faster rate compared to last year.
“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,” Shivaan Tandon, markets economist at economic data provider Capital Economics said a note after the GDP release.
Domestic demand remains the main source of the weakness in the economy, Tandon said, pointing out that sequential growth in consumer spending slowed to just 0.2% from 0.5% in the third quarter.
He expects growth of 1.1% this year, which is well below the BOK’s most recent forecast of 1.6%-1.7% growth in 2025.
The GDP reading comes after the Bank of Korea made two surprising moves in recent months, first cutting rates by 25 basis points in late November and then holding rates in its meeting on Jan. 16 meeting. The BOK’s policy rate currently stands at 3%.
“Downside risks to economic growth have intensified and the volatility of exchange rates has increased due to the unexpected political risks that have recently escalated … export growth is expected to slow and domestic demand is forecast to recover at a slower pace than expected,” the BOK had warned after its last monetary policy meeting.
South Korea’s consumer sentiment had collapsed in December after the short-lived martial law declaration by impeached president Yoon Suk Yeol.
The consumer sentiment index plunged to its lowest level since November 2022 at 88.4 in December, signaling that consumers had turned pessimistic about the economy. It’s reading for the prior month had come in at 100.7.
The index recovered to 91.2 in January, but it was still short of the 100 mark that separates consumer pessimism from optimism.
— CNBC’s Anniek Bao contributed to this report.
