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Economic and political overview

Economic Overview

Strong economic fundamentals and sound macroeconomic policies have helped South Korea navigate recent challenges, including higher inflation, slower post-pandemic growth, financial market stress, and housing market adjustments. After growing 1.4% in 2023, real GDP rebounded to 2.2% in 2024, driven by strong exports despite weak domestic demand. As domestic demand gradually strengthens and export growth normalizes, growth is expected to moderate to around 2% in 2025 (IMF). In recent decades, South Korea's potential growth has slowed faster than its peers. The country faces structural challenges, including rapid population ageing, shifting global trade patterns, and AI-driven technological changes. In response, authorities have developed a “Dynamic Economy Roadmap” to improve quality of life and economic sustainability through structural reforms. However, growing domestic political uncertainty makes advancing these reforms more challenging.

Despite a significant revenue shortfall, restrained spending resulted in a contractionary fiscal stance in 2023. In 2024, tax revenue continued to underperform, with an expected shortfall of 29.6 trillion won (1.2% of GDP), mainly due to weak corporate profitability in 2023 and lower property market valuations. As a result, despite efforts for fiscal consolidation, the central government's fiscal deficit is projected at 1.5% of GDP in 2024, with the cyclically adjusted primary deficit near the 2023 level (0.7% of GDP), indicating a neutral fiscal stance. The 2025 budget anticipates a rebound in tax revenues and a modest increase in expenditure. The IMF projects the fiscal deficit to decline to 1.2% of GDP, with a cyclically adjusted primary deficit of 0.3% of GDP and a fiscal impulse of -0.4% of GDP. The debt-to-GDP ratio - at 52%.9 last year - is projected to marginally rise to 54.3% in 2025 (IMF). Private credit growth rebounded in 2024, driven by increased housing-related household loans and strong corporate credit. While the private credit-to-GDP ratio remains high, it has moderated, and the credit gap has narrowed. According to official governmental figures, in 2024, the consumer price index stood at 2.3%, following a 3.6% rise in 2023, marking the slowest annual increase in four years. The central bank announced plans for further interest rate cuts in 2025 to support economic growth, after implementing its first back-to-back rate cuts since 2009 at the final policy meeting of 2024. As a result, average inflation in 2025 is expected to stay around 2%, though risks from escalating geopolitical tensions and uncertain policies in major economies remain high.

Unemployment rates in South Korea have shown remarkable resilience, remaining historically low at 2.9% in 2024, compared to 2.7% one year earlier. Labour market conditions have demonstrated relative stability, supported by the country's diversified economic structure and strong export-oriented industries. Looking ahead, unemployment rates are projected to hover around 3%, reflecting potential challenges in sustaining job creation amid evolving economic conditions. Moreover, employment and wage gaps between men and women are among the highest in the OECD and South Korea's fertility rate dropped to 0.72 children per woman in 2023, the lowest globally, posing a serious challenge for the country’s future. South Korea has experienced remarkable success in combining rapid economic growth with significant reductions in poverty. Income per capita is high and stood at USD 65,582 in 2024 (IMF); nevertheless, the poverty rate is particularly high for over-65s, estimated at 38% by the OECD.

 
Main Indicators 2024 (E)2025 (E)2026 (E)2027 (E)2028 (E)
GDP (billions USD) 1,869.711,790.321,851.821,925.581,999.26
GDP (Constant Prices, Annual % Change) 2.01.01.42.12.1
GDP per Capita (USD) 36,12934,64235,88037,36738,850
General Government Balance (in % of GDP) -0.6-0.1-0.1-0.1-0.3
General Government Gross Debt (in % of GDP) 52.554.555.756.657.5
Inflation Rate (%) 2.31.81.81.92.0
Unemployment Rate (% of the Labour Force) 2.83.03.02.92.8
Current Account (billions USD) 99.0462.6667.2271.0375.64
Current Account (in % of GDP) 5.33.53.63.73.8

Source: IMF – World Economic Outlook Database , Latest data available

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 29.58 million people out of its 51.71 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. Nowadays, industry represents 31.6% of the GDP and employs 24% of the workforce (World Bank, latest data available). South Korea has emerged as a global leader in various industries, thanks to strategic government policies, heavy investments in research and development, and a skilled workforce. The main industries include textile, steel (with POSCO being among the world's largest steelmakers), car manufacturing, shipbuilding and electronics (South Korea is the world's second-largest producer of semiconductors, which represents its main export). According to Statistics Korea (KOSTAT), the industrial production index (excluding agriculture, forestry, and fisheries) rose 1.7% in 2024. Manufacturing output increased, with chip and pharmaceutical production up 1.4%, despite declines in electrical equipment and primary metals. Facility investment grew 4.1%, driven by a 2.9% rise in semiconductor machinery and a 7.8% increase in transportation equipment.

The agricultural sector in South Korea only makes a negligible contribution to the country's GDP (1.6%) and employs only 5% of the active population (World Bank). 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 and the country depends heavily on imports for food, sourcing about 70% of its agricultural and food products from abroad. South Korea's mineral resources are limited to gold and silver. Official statistics show that rice production in 2024 totalled 3.585 million tons, down 3.2% from 2023. The cultivated area decreased by 1.5%, from 708 thousand hectares in 2023 to 698 thousand hectares in 2024. Moreover, South Korea's exports of agricultural and related products hit a record high in 2024, rising 6.1% from the previous year to USD 13 billion, driven by strong demand for instant noodles and processed rice products.

The service sector is the largest and fastest economic segment, accounting for 58.4% of GDP and employing 71% of the active population (World Bank). Tourism is one of the leading subsectors, comprising around 3.8% of the country's total economic output (data WTTC). In 2024, South Korea welcomed 16.37 million foreign visitors, up 48.4% from 2023 and reaching 94% of the 2019 level. The country also has a highly developed and profitable financial services sector, hosting Asia's third-largest insurance and banking markets. Service sector output rose 1.4% in transportation, warehousing, finance, and insurance, but fell in wholesale and retail. The retail sales index fell 2.2% in the same period (KOSTAT).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 5.3 24.0 70.7
Value Added (in % of GDP) 1.5 33.9 57.5
Value Added (Annual % Change) 0.6 2.9 1.6

Source: World Bank - Latest available data.

 
Monetary Indicators 20202021202220232024
South Korean Won (KRW) - Average Annual Exchange Rate For 1 USD 1,180.271,143.951,291.451,305.661,363.38

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 in its economic success, with trade accounting for 88% of its GDP (World Bank). According to data by OEC, in 2023,  the country’s main exports included integrated circuits (20.8%), cars (10%), refined petroleum (7.6%), office machine parts (2.8%), and motor vehicle parts and accessories (2.7%); whereas imports were led by integrated circuits (16.5%), petroleum gas (7.2%), crude petroleum (6.8%), machinery having individual functions (6.8%), and cars (4.4%).

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 (25.1% of total exports in 2023), followed by the United States (18.3%), Hong Kong (4.5%), Japan (4.4%), and Taiwan (4.4%). Its main suppliers are China (48.8%), the United States (20.3%), Japan (14.2%), Germany (7.2%), and Australia (6.9% data OEC 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 recently decided to join 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 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% 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 the 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.

South Korea’s trade balance is structurally positive; however, the surplus has been decreasing in recent years. According to WTO, exports of goods amounted to USD 632.2 billion in 2023, while imports reached USD 642.5 billion (-7.5% and -12.1% y-o-y, respectively). As per services, exports stood at USD 124.4 billion (-5.4%) against USD 150.1 billion in imports (+8.1%). The Ministry of Trade, Industry and Energy (MOTIE) reported that South Korea’s 2024 exports reached a record high of USD 683.8 billion, surpassing the previous record of USD 683.6 billion in 2022. Daily average exports increased by 8.2% to USD 2.53 billion, outperforming the USD 2.51 billion in 2022. Semiconductor exports surged 43.9% to USD 141.9 billion, while automobile exports remained steady at USD 70.8 billion, down 0.1% due to production setbacks from strikes. Imports for 2024 dropped 1.6% year-on-year to USD 632.0 billion, mainly due to reduced energy imports. The trade balance posted a surplus of USD 51.8 billion, a USD 62.1 billion improvement from 2023, marking the highest surplus since 2018.

 
Foreign Trade Values 20202021202220232024
Imports of Goods (million USD) 467,633615,093731,370642,572631,767
Exports of Goods (million USD) 512,498644,400683,585632,226683,609
Imports of Services (million USD) 102,928123,810137,679151,325161,441
Exports of Services (million USD) 88,844119,178130,989124,442138,167

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

Foreign Trade Indicators 20202021202220232024
Foreign Trade (in % of GDP) 65.575.390.682.384.6
Trade Balance (million USD) 80,60575,73115,62037,658100,127
Trade Balance (Including Service) (million USD) 65,93570,4448,36710,83476,425
Imports of Goods and Services (Annual % Change) -3.310.24.23.02.5
Exports of Goods and Services (Annual % Change) -1.710.83.93.46.8
Imports of Goods and Services (in % of GDP) 30.936.045.340.940.3
Exports of Goods and Services (in % of GDP) 34.639.345.341.344.4

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20252026 (e)2027 (e)2028 (e)2029 (e)
Volume of exports of goods and services (Annual % change) 1.51.93.33.43.1
Volume of imports of goods and services (Annual % change) 1.72.22.93.03.0

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)		 2024
China 19.5%
United States 18.8%
Vietnam 8.5%
Hong Kong SAR, China 5.1%
Japan 4.3%
See More Countries 43.8%
Main Suppliers
(% of Imports)		 2024
China 22.1%
United States 11.5%
Japan 7.5%
Saudi Arabia 5.0%
Australia 4.7%
See More Countries 49.1%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
President YOON Suk Yeol (since 10 May 2022) was impeached and suspended by the National Assembly on 14 December 2024, with Prime Minister HAN Duck-soo serving as Acting President. HAN was also impeached on 27 December 2024, making Deputy Prime Minister CHOI Sang-mok the Acting President. The Constitutional Court has 180 days to decide on YOON's removal.
Next Election Dates
Presidential: March 2027
Main Political Parties
The most influential parties in South Korea include:

- People Power Party (PPP, formerly Liberty Korea Party): right-wing, conservative, currently the second-largest party in the National Assembly but leading a minority government
- Democratic (Minjo) Party: centrist-liberal political party, advocating for human rights, improved relations with North Korea, and a "new progressivism" economic policy
- Rebuilding Korea Party (RKP): centre-left, progressive
- Progressive Party (formerly Minjung): referred to as "far-left" in South Korea because of its anti-American military presence there and North Korean sympathies
- Social Democratic Party (SDP): centre-left
- Justice Party: centre-left; organised around progressivism
- Green Party: champions ecological wisdom, social justice.
Other parties include the Basic Income Party (BIP) and the New Reform Party (NRP).

Executive Power
The President is the chief of state, head of government, and commander-in-chief of the armed forces. He or she is elected by a popular vote for a single five-year term without the possibility of re-election. The President enjoys executive powers and appoints the Prime Minister, subject to parliamentary approval, and the State Council (cabinet), with some key appointments requiring parliamentary consent. The Prime Minister is not required to be a member of parliament and primarily assists the President while supervising ministries.
Legislative Power
The legislature in South Korea is unicameral. The Parliament, called the National Assembly, has 300 seats, with 253 filled through single-member districts and 47 through proportional representation. Each member is elected to serve four-year terms. South Korea follows a presidential system, where the executive branch is independent of the National Assembly, though the Assembly can impeach the President under specific conditions.
 

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