By Jihoon Lee
SEOUL (Reuters) -South Korea’s economy barely grew in the fourth quarter of 2024, missing market expectations, as domestic demand was hurt in part by the country’s worst political crisis in decades, raising bets for more fiscal and monetary support to revive growth.
Gross domestic product (GDP) expanded 0.1% from a quarter earlier on a seasonally adjusted basis, advanced central bank estimates showed on Thursday, compared with increases of 0.1% in the third quarter and 0.2% forecast in a Reuters survey.
In December, consumer and business sentiment dampened amid political chaos, after President Yoon Suk Yeol was impeached and suspended from duties over his short-lived bid to impose martial law, followed by the impeachment of Prime Minister Han Duck-soo.
For the quarter, consumer spending rose 0.2% and corporate investment grew 1.6%, weaker than the previous quarter’s gains of 0.5% and 6.5%, respectively, while construction investment fell 3.2%.
Exports rose 0.3%, recovering from their fall of 0.2% a quarter earlier, led by sales of semiconductors on robust demand for artificial intelligence.
South Korea’s central bank is expected to lower interest rates next month by 25 basis points, and twice more this year to 2.25%, after its unexpected rate-hold decision this month to prevent the won – which weakened the most among Asian currencies last year – from falling further.
“Korea’s economy continued to struggle in Q4 and 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,” said Shivaan Tandon, Markets Economist at Capital Economics.
There are growing calls from economists and opposition lawmakers for the government to draft a supplementary budget to support frail domestic demand, with no less a figure than Bank of Korea Governor Rhee Chang-yong arguing the case last week.
Finance Minister Choi Sang-mok, serving as acting president, said earlier this week the government was willing to discuss it with parliament.
In the October-December quarter, GDP grew 1.2% on an annual basis, weaker than gains of 1.5% the quarter before and 1.4% expected by economists, and marked the slowest pace since the second quarter of 2023.
In 2024, Asia’s fourth-largest economy grew 2.0%, after rising 1.4% in 2023, but its growth is projected to slow again in 2025 to 1.6% or 1.7%, below the estimated potential of around 2%, according to the Bank of Korea.
