S.Korea’s economy grows 2.0% in 2024; Q4 GDP below forecast

South Korea’s economy expanded 2.0% last year, falling short of the central bank’s forecast on weaker-than-expected growth in the fourth quarter amid dwindling private consumption further subdued by the country’s unexpected local political upheaval.

Gross domestic product in Asia’s fourth-largest economy grew 2.0% in 2024 from the prior year, the Bank of Korea’s preliminary data showed on Thursday.

This is below the central bank’s earlier projection of 2.2% made in November.

The slower-than-expected growth is mainly due to the country’s further softened private consumption and construction sector slump in the last quarter.

The Korean GDP in the October-December period added 1.2% from a year ago, the data showed. The country’s economy grew 3.3%, 2.3% and 1.5% on-year in the previous three quarters, respectively, a sign of losing steam.

Against the third quarter, it remained unchanged at 0.1%, falling 0.4 percentage point short of the central bank’s projection in November.

RECESSION CONCERN LOOMS

With no sign of imminent recovery in the country's quarterly growth, recession concerns are growing.

A recession, a significant economic downturn, is generally confirmed after two consecutive quarters of negative economic growth, or a decline in GDP.

After the Korean GDP decreased 0.2% in the second quarter from the prior quarter, it grew 0.1% in the following quarters.

A mere 0.1% growth for the two consecutive quarters stoked fears that the Korean economy could fall into a low growth trap with a prolonged slowdown, some economists said.

But others shrugged off such concerns as the country's economy hit unexpected bumps in the last quarter of last year in the wake of local political havoc caused by President Yoon Suk Yeol’s ill-fated martial law decree and Jeju Air's deadly plane crash.

HIGH RATE CUT EXPECTATIONS

Korea’s snail’s pace growth raised expectations for a policy rate cut by the BOK in February after the central bank surprisingly kept the rate flat at 3.00% earlier this month.

On Monday, the BOK lowered its economic growth forecasts, citing growing economic uncertainties amid political turmoil surrounding the ill-fated martial law declaration and US trade protectionism.

It projected that the Korean economy expanded 2.0-2.1% in 2024 and 0.2% or less in the fourth quarter, failing to meet its earlier expectations.

It also expected the economy to grow 1.6-1.7% in 2025, lower than its previous forecast of 1.9% issued last November. Its latest forecast also fell short of the government’s expectation of 1.8% released on Jan. 2.

“Sentiment among economic entities quickly deteriorated due to the overlapping political uncertainty after the unexpected martial law decree and the Jeju Air plane crash in December,” the BOK said in its official blog on Monday.

Private consumption expanded 1.1% in 2024, moderating from a 1.8% gain in 2023, while investment in the construction sector shrank 2.7% over the same period after growing 1.5% the previous year.

Feeble domestic demand offset the 6.9% growth in the country’s exports last year.

Write to Jin-gyu Kang at josep@hankyung.com

Sookyung Seo edited this article.