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Economic and political overview

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Ranking 12th among the world's largest economic powers and 4th in Asia in 2023, South Korea is famous for its spectacular rise from one of the poorest countries in the world to a developed, high-income country in just one generation. During the global financial crisis of 2007-2008, the country maintained a stable economy and even experienced economic growth during the peak of the crisis. However, the South Korean economy went into its worst year growth period in more than half a century in 2020, battered by China's economic slowdown and uncertainties over the trade war between Beijing and Washington, and the global effects of the COVID-19 pandemic. Stagnant investment and the failure to spill the boom of chip sector over into other industries already limited economic growth to an estimated 2.2% in 2019, before declining to -0.9% in 2020 and bouncing back at 4.1% in 2021 and 2.6% in 2022. According to the IMF's October 2022 forecast, GDP growth is expected to reach 2% in 2023.

Thanks to stimulus packages, public finances remain stable in 2021 and 2022. The budget surplus decreased from 0.5% of GDP in 2019 to -1.5% in 2020 but came back to +0.5% of GDP in 2021 and -1.6% in 2022. The IMF expects the fiscal deficit will remain at +0.3% in 2023 and +0.4% in 2024. Public debt grew to an estimated 51.3% of GDP in 2021 and 54.1% in 2022 and is expected to rise in the coming years at 54.4% in 2023 and 55.2% in 2024 (IMF, October 2022). Inflation is projected to stand at 3.8% in 2023, compared to 5.5% in 2022 and 2.5% in 2021. Since 2020 the government has worked hard to boost the economy through expansionary fiscal spending, and as a result employment data showed an improvement in terms of both the number of jobs and employment status. Framework measures for industrial innovation have been completed, which cover the plans to restructure manufacturing and services, develop the new core industries of data, networks and AI, and promote the three new promising industries of a system on a chip, biohealth and future cars. The government also worked for a second venture boom, strong employment support and social safety nets, which led to improved distribution indicators, and supplementary measures to help the 52 hour workweek run smoothly. However, the private sector has not yet picked up, as well as the country's growth potential.

For 2022, South Korean exports increased 6.1% while imports rose 18.9%. Nevertheless,The trade shortfall was $4.7 billion in December, resulting in the first annual deficit since the global financial crisis as elevated oil prices battered many trade-dependent nations. South Korea’s exports continued to decline early in 2023 in a sign of cooling global demand as higher interest rates weigh on consumption (Bloomberg, 2023).

South Korea has experienced remarkable success in combining rapid economic growth with significant reductions in poverty. Income per capita increased from USD 100 in 1963 to more than USD 42 500 in 2022 (IMF, October 2022). Although the unemployment rate was estimated very low in 2022 at 3% (IMF, 2023) the number of irregular workers is very high, social inequalities are deepening and social ties are deteriorating. The government is struggling to turn employment around, even after using USD 400 million extra budget mainly for job-creation projects and is urging pension funds to invest more in small-cap Kosdaq stocks to boost innovation. In the medium and longer terms, South Korea will spend more on preparing measures to tackle the low birth rate, elderly poverty and low employment among women. The IMF expects however the unemployment rate to remain slightly affected by the negative economic impact of the COVID-19 pandemic, the rate being currently estimated to stay at 3.4% in 2023.

South Korea has recovered well from the pandemic, a testament to its strong economic fundamentals and appropriate policy responses. Economic output has surpassed pre-crisis levels despite multiple waves of infection. The effects of Russia’s invasion of Ukraine and related sanctions have exacerbated concerns about stagflation risks. Specifically, the increase in commodity prices, particularly of energy, has been fueling inflationary pressures even as the adverse impact of the war on trading partners and recent developments in China could significantly weigh on economic activity in Korea (IMF, 2023). In 2023, the country’s most immediate challenge will be to navigate the volatile international context, facing steep challenges against a backdrop of the persistent health and economic overhang of a global pandemic and a war in Europe, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

 
Main Indicators 20202021202220232024
GDP (billions USD) 1,644.681,810.971,734.211,792.471,879.04
GDP (Constant Prices, Annual % Change) -0.74.12.62.02.7
GDP per Capita (USD) 31,72835,00433,59234,76736,489
General Government Balance (in % of GDP) -1.50.2-1.60.30.4
General Government Gross Debt (in % of GDP) 48.751.354.154.455.2
Inflation Rate (%) 0.52.55.53.82.3
Unemployment Rate (% of the Labour Force) 3.93.73.03.43.3
Current Account (billions USD) 75.9088.3055.2962.5673.24
Current Account (in % of GDP) 4.64.93.23.53.9

Source: IMF – World Economic Outlook Database , October 2021

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

South Korea has experienced one of the largest economic transformations of the past 60 years. Given its limited geographical size, insufficient natural resources and population size (a labour force of 28.4 million people out of its 51.28 million population), the country has devoted special attention to technology development and innovation to promote growth, growing from a predominantly rural, agricultural nation into an urban, industrialized country. Industry represented 32.4% of the GDP and employed 25% of the workforce in 2022 (World Bank, 2023). The main industries include textile, steel, car manufacturing, shipbuilding and electronics. South Korea is the world's largest producer of semiconductors.

The agricultural sector in South Korea only makes a negligible contribution to the country's GDP (1.8%) and employed only 4.8% of the active population in 2021 (World Bank, 2023). Rice is the main agricultural crop; barley, wheat, corn, soybeans and sorghum are extensively cultivated. The sector also includes large-scale livestock farming. Less than one-fourth of the land is cultivated. South Korea's mineral resources are limited to gold and silver.

The service sector is the largest and fastest economic sector, accounting for 57% of GDP and employing 70.2% of the active population (World Bank, 2023), especially department stores, store chains and supermarkets. Tourism was one of the fast-growing sectors, with a rise of 14% in 2019 according to Korean Tourism Organization, although the number of Chinese tourists dropped drastically in the last years because of Beijing's travel ban, which has not been fully lifted. Since 2020 the country is waiting for the world's borders to open again to international travel.

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.  Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024 (International Monetary Fund - IMF, 2023). The impact of the 2022 world events appears to have affected both sides of most sectors and markets in this country for the third year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 5.1 24.6 70.3
Value Added (in % of GDP) 1.8 32.4 57.0
Value Added (Annual % Change) 3.8 5.1 3.8

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
South Korean Won (KRW) - Average Annual Exchange Rate For 1 USD 1,160.271,130.421,100.561,165.401,180.27

Source: World Bank - Latest available data.

 

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Foreign Trade

The export-oriented policies of South Korea are one of the most important factors of its economic success. The country is the world's seventh largest exporter of goods and the tenth largest importer (World Trade Organisation, 2022). In 2022 trade represented almost 80% of its GDP (World Bank, 2023). The country exports mainly Electrical and electronic equipment (31% of total exports in 2021), machinery, nuclear reactors, boilers (12%), vehicles other than railway, tramway (10%), plastics (6.7%), Mineral fuels, oils, distillation products (6.2%) and iron and steel (4.3%). Its main imports are Electrical and electronic equipment (19%), Mineral fuels, oils, distillation products (22%), machinery, nuclear reactors, boilers (11%), optical, photo, technical, medical apparatus (3.7%), vehicles other than railway, tramway (3.3%) and iron ores slag and ash (4%). The International Monetary Fund (IMF) is forecasting an increase of only of 0.1% in the volume of exports of goods and services of this country in 2023, after an increase of 3.6% in 2021 and 3.7% in 2021, and an increase of 2% of its imports, after a fall of 2.2% in 2021 and 2% in 2020 (IMF Country Report, 2023).

South Korea is heavily integrated into international trade and finance and is subsequently highly vulnerable to external influences, especially from China, which is its main trade partner (26% of total exports in 2022), followed by United States (16%), Vietnam (9.2%), Hong Kong (6%) and Japan (4.8%). Its main suppliers are China (24%), United States (13%), Japan (9.3%), Australia (5.6%) and Saudi Arabia with 4.1% (WTO, 2023). South Korea has concluded free-trade agreements with many countries (the last one with five Central American countries) representing more than 70% of the global economy. The country is still considering joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which was signed by 11 Asia-Pacific countries in March 2018. On the 15th of November 2020 South Korea has signed the Regional Comprehensive Economic Partnership (RCEP) with 14 other Indo-Pacific countries. This free trade agreement is the largest trade deal in history, covering 30 per cent of the global economy. It includes the Association of Southeast Asian Nations (ASEAN : Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and ASEAN’s free trade agreement partners (Australia, China, India, Japan, New Zealand and Republic of Korea). The RCEP covers goods, services, investment, economic and technical cooperation. It also creates new rules for electronic commerce, intellectual property, government procurement, competition, and small and medium sized enterprises.

According to WTO, exports of goods amounted to USD 644.4 billion in 2021, while imports amounted to USD 615.1 billion. Exports of services amounted to USD 121.9 billion, while imports amounted to USD 125.6 billion. Since February 2012, the country's trade balance has been in high surplus and is expected to remain so in the coming years. South Korea remained a net exporter for the 13th consecutive year in 2021. According to WTO, trade surplus including services amounted to USD 29.31 billion in 2021.

 
Foreign Trade Values 20172018201920202021
Imports of Goods (million USD) 478,478535,202503,343467,633615,093
Exports of Goods (million USD) 573,694604,860542,233512,498644,400
Imports of Services (million USD) 120,317127,300125,034101,587127,120
Exports of Services (million USD) 86,46997,95797,91686,145122,741

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20172018201920202021
Foreign Trade (in % of GDP) 77.179.075.869.080.5
Trade Balance (million USD) 113,593110,08779,81280,60576,207
Trade Balance (Including Service) (million USD) 76,85980,71752,96765,93573,099
Imports of Goods and Services (Annual % Change) 8.91.7-1.9-3.110.1
Exports of Goods and Services (Annual % Change) 2.54.00.2-1.710.8
Imports of Goods and Services (in % of GDP) 36.237.336.532.738.5
Exports of Goods and Services (in % of GDP) 40.941.739.336.442.0

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20222023 (e)2024 (e)2025 (e)2026 (e)
Volume of exports of goods and services (Annual % change) 3.60.13.83.73.6
Volume of imports of goods and services (Annual % change) 2.12.03.83.63.5

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
South Korea is a member of the following international economic organisations: IMF, Asia-Pacific Economic Cooperation (APEC), OECD, G-20, Association of Southeast Asian Nations (ASEAN) (dialogue partner), ICC, WTO, among others. For the full list of economic and other international organisations in which participates South Korea click here. International organisation membership of South Korea is also outlined here.
Free Trade Agreements
South Korea is a member of Regional Comprehensive Economic Partnership (RCEP) signed on 15 November 2020. The complete and up-to-date list of Free Trade Agreements signed by South Korea can be consulted here.
 

Main Partner Countries

Main Customers
(% of Exports)		 2021
China 25.3%
United States 14.9%
Vietnam 8.8%
Hong Kong SAR, China 5.8%
Japan 4.7%
See More Countries 40.5%
Main Suppliers
(% of Imports)		 2021
China 22.5%
United States 12.0%
Japan 8.9%
Australia 5.4%
Saudi Arabia 3.9%
See More Countries 47.3%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
President: Yoon Suk-youl (since 10 May 2022)
Prime Minister:  (since 14 May 2021) President Yoon has nominated HAN Duck-soo to the role of prime minister)
Next Election Dates
Legislative: April 10, 2024
Presidential: 2027
Current Political Context
The Korean-peninsula remains one of the most protracted and volatile conflict zones in the word. Ex-President Moon Jae-in has pushed the denuclearization and the 'peace economy' concept as the cornerstones of its North Korea policy. In its five-year plan, the government was working to lay the foundations for economic unification by restarting inter-Korean cooperation and seeking a single market for Seoul and Pyongyang. The purpose is to achieve peace and unification by 2045. Under the previous administration, Seoul has undertaken its first unified diplomatic initiative aimed at advancing ties with India and the Association of Southeast Asian Nations (ASEAN). This policy is an extension of South Korea’s need to diversify its economic and strategic relationships amid the uncertainty posed by competition between its closest ally, the United States, and largest trading partner, China. By elevating ties with India and Southeast Asia, particularly in the economic realm, Seoul hopes to insulate itself from the risks posed by trade and strategic friction between the two great powers.

Under the newly elected President Yoon Suk-yeol, South Korea is adapting to a rapidly changing geopolitical environment by seeking to elevate its international profile and improve relations with key allies. But sustaining this important strategic shift will require its deeper institutionalization, both at home and in the US and Japan. More broadly, South Korea also will need to strengthen its participation in multilateral institutions and networks, so that it can work with other countries to provide international public goods, mitigate supply-chain problems, and address other global issues.

Yoon Suk-yeol, will face a period of policy gridlock in 2023 as a result of his narrow electoral support base, the ongoing power struggles within the ruling People Power Party, the opposition Minjoo Party's control of parliament and growing public discontent with the rising cost of living and divisive labour and gender policies. South Korea’s parliament approved a 2023 budget that reflects a more rigorous fiscal approach from the new government as it tries to position the nation to address rising economic risks. It represents efforts by officials under new President Yoon Suk Yeol to reduce South Korea’s debt dependence and wean the economy off pandemic-era stimulus. A relaxation of Covid restrictions has allowed businesses to bounce back with less government support. That’s giving policy makers a chance to pivot to issues ranging from an ageing population to slowing economic growth and mounting geopolitical uncertainty.

Inter-Korean tensions will intensify as South Korea deepens defence co-operation with the US while North Korea seeks to further its development of nuclear weapons. South Korea will refrain from siding with the US in its rivalry with China, to protect its own economic interests.

One problem for President Yoon Suk-yeol, whose margin of victory over his more left-wing opponent was just 0.74% in 2022, is the level of domestic political support for a major foreign-policy shift. Given South Korea’s winner-takes-all political system, in which presidents are limited to a single five-year term, many worry that any major foreign-policy changes could be summarily reversed as soon as 2027. With the next presidential election not due until then, Yoon has time to secure such a consensus if he works hard at it.

Main Political Parties
The re-branding of party names and party mergers have been a popular means of securing additional votes in recent years. The most influential parties are:

- The Democratic (Minjo) Party : progressive

- People Power Party or PPP (formerly Liberty Korea Party): right-wing

- Justice Party: centre-left; organised around progressivism

Executive Power
The President is the chief of the state, head of the Government and commander-in-chief of the armed forces. He or she is elected by a popular vote for a single five-year term. The President enjoys executive powers and appoints both the Prime Minister and the State Council (cabinet) with consent of the parliament. The Prime Minister is not required to be a member of parliament and his or her main role is to assist the President.
Legislative Power
The legislature in South Korea is unicameral. The Parliament, called the National Assembly, has 300 seats distributed among parties in proportion to their share of the vote. Each member is elected to serve four-year terms. The executive branch of the government is directly or indirectly dependent on the support of the National Assembly, often expressed through a vote of confidence.
 

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COVID-19 Country Response

COVID-19 epidemic evolution
To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the disease in The Republic of Korea (South Korea), please visit the governmental portal on COVID-19 with the official data.
For the international outlook you can consult the latest situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures
To find out about the latest public health situation in South Korea and the current sanitary measures in vigour, please visit the “Public Advice” section of the official governmental portal on COVID-19.
Travel restrictions
The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.
Import & export restrictions
For information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), refer to the website of Korea Customs Service.
For the updated overview of the introduced trade import and export restrictions and other trade measures (ex. tariffs reductions) due to COVID-19 pandemic, please consult the section dedicated to South Korea on International Trade Centre's COVID-19 Temporary Trade Measures.
Economic recovery plan
For information on the economic recovery scheme put in place by the South Korean government to address the impact of the COVID-19 pandemic on the Korean economy, refer to the website of the Korean Financial Services Commission and the Bank of Korea’s Policy Response to COVID-19.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Korean government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to the Republic of Korea in the IMF’s Policy Tracker platform.
Support plan for businesses
For the information on the local business support scheme established by the Korean government to help small and medium-sized companies to deal with the economic impacts of the COVID-19 epidemic on their activity, refer to the website of the Korean Financial Services Commission to access the emergency programs for business.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document. You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.
Support plan for exporters
For the up-to-date information on possible support plans for exporters in South Koreaif applicable, please consult the website of the Ministry of Trade, Industry and Energy and the progams administered by the Korean Financial Services Commission.
 

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