South Korea’s economy expanded by just 1 percent in 2025, marking its slowest growth rate in five years, despite strong export performance driven by the global artificial intelligence boom, the country’s central bank has said.
According to the Bank of Korea, Asia’s fourth-largest economy continued to battle weak domestic demand, a struggling housing market, and lingering political uncertainty following former president Yoon Suk Yeol’s controversial martial law declaration, which had plunged the country into turmoil.
The 1 percent growth recorded last year was the weakest since 2020, when the economy contracted sharply due to the Covid-19 pandemic.
Exports emerged as the main bright spot, rising by 4.1 percent, supported largely by soaring demand for semiconductors used in artificial intelligence infrastructure. Imports also increased by 3.8 percent, reflecting modest economic activity.
The central bank noted that while private and government consumption showed some improvement, a deeper decline in construction investment significantly weighed on overall growth, largely due to persistent challenges in the real estate sector.
“The decline in construction widened, and the growth of manufacturing slowed,” the bank said, adding that the economy also contracted in the October–December quarter.
Officials explained that part of the slowdown was expected, citing a base effect after stronger growth in the third quarter. However, they acknowledged that weak construction activity played a major role in dragging down the economy.
In its November outlook, the central bank had projected 1.8 percent growth for 2026, banking on a recovery in domestic demand and a strong semiconductor cycle.
South Korea remains home to global chip giants Samsung Electronics and SK hynix, whose products are critical to the expansion of artificial intelligence technologies worldwide.
Investor optimism around the semiconductor sector pushed the benchmark Kospi index past the 5,000 mark for the first time on Thursday.
“Today’s rally is being driven mainly by semiconductor manufacturers, especially Samsung Electronics and SK hynix, amid growing expectations of robust earnings in the sector,” said Chung Hae-chang, an analyst at Daishin Securities.
SUNTV Global Channel
