Seoul: The South Korean economy experienced a contraction in the first quarter of 2025, marking the first on-quarter decline in nine months. This downturn, highlighted by central bank data, is attributed to a domestic political crisis and uncertainties related to the Donald Trump administration's tariff policies.
According to Yonhap News Agency, the Bank of Korea (BOK) reported that the country's real gross domestic product (GDP) decreased by 0.2 percent from the previous quarter. This contraction follows a 1.2 percent year-on-year expansion in the previous quarter, contrasting with a 0.1 percent decline in the first quarter of 2025.
As Asia's fourth-largest economy, South Korea had shown a growth rate of 1.3 percent in the first quarter of 2024. However, the economy slipped into contraction in the subsequent quarter with a 0.2 percent decline, followed by minimal growth of 0.1 percent in both the third and fourth quarters.
BOK had initially forecasted a 0.2 percent expansion for the first quarter of 2025. The unforeseen contraction is attributed to prolonged domestic political uncertainty and global trade risks due to U.S. tariff policies. BOK official Lee Dong-won emphasized that these factors have delayed recovery in consumer and investment sentiment.
Exports fell by 1.1 percent from the previous quarter, primarily due to slower shipments of chemicals, machinery, and equipment. Additionally, facility investment dropped by 2.1 percent, and construction investment decreased by 3.2 percent. Private spending also saw a 0.1 percent decline, largely due to weakening demand for services, while government spending edged down by 0.1 percent.
The unexpected negative growth coincided with the political turmoil following former President Yoon Suk Yeol's imposition of martial law on December 3, which dampened consumer spending. Yoon was subsequently removed from office on April 4.
The U.S. tariff scheme, including "reciprocal" tariffs and existing auto and steel tariffs, has further impacted South Korea's trade-dependent economy. Although Trump announced these tariffs, the implementation has been temporarily delayed for 90 days.
The BOK had previously projected a 1.5 percent growth outlook for 2025 but recently suggested that this may have been overly optimistic. Despite the challenges, BOK official Lee noted a potential slight improvement in private consumption in the second quarter, following eased political uncertainty and the BOK's rate cuts totaling 0.75 percentage points since October.