Economic Overview

South Korea, a developed economy renowned for its dynamic export sector, has weathered various economic challenges while maintaining its growth trajectory. In 2023, GDP growth moderated to 1.4%, down from 2.6% in 2022, primarily due to factors such as elevated interest rates and energy prices, which dampened private consumption and investment. Despite these obstacles, the semiconductor sector showed signs of recovery, hinting at a potential economic resurgence. Projections indicate a rebound in growth to 2.3% in 2024 and 2.1% in 2025, driven by renewed export and investment activities, especially in semiconductors. These figures underscore South Korea's ability to adapt and thrive amid changing global economic landscapes.

In fiscal terms, South Korea witnessed a narrowing fiscal deficit in 2023, with the consolidated deficit decreasing to 1.1% of GDP, influenced by expenditure reductions. However, revenue collection faced challenges, with a 10.1% drop in the year to August, attributed to weak corporate performance, particularly in the semiconductor sector, and declining property capital gains tax. To address a revenue shortfall of KRW 59.1 trillion (2.6% of GDP) in 2023, the government utilized public funds, including KRW 20 trillion from the FX stabilization fund, to bridge the gap rather than resorting to additional deficit financing. The forecasted consolidated deficit for 2024 stands at 0.8% in line with the government's budget proposal, although revenue performance remains weak. Despite restrained spending growth of 2.8% relative to the 2023 budget, fiscal deficits are expected to persist, signalling the government's commitment to fiscal prudence amid revenue challenges. Looking ahead, the administration aims for modest medium-term deficits, anticipating a decrease to 0.2% of GDP in 2025. Nevertheless, the debt-to-GDP ratio - at 54.3% last year - is projected to marginally rise to 56.5% by 2025. Inflation in 2023 moderated considerably, dropping to 3.4%, with further decline anticipated to 2.3% in 2024, reflecting gradual stabilization and adjustment in the economy. Monetary policy is expected to maintain stability, as indicated by the Bank of Korea's policy rate at 3.5% since January 2023. Household borrowing trends remain concerning, despite a slight decline to 101.7% of GDP in 2Q23 from its peak in 2Q22, raising the potential for increased debt burdens. Nevertheless, financial sector risks appear manageable, with banks well-positioned to navigate potential pressures, supported by strong underwriting standards and macroprudential measures.

 
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 56,709 in 2023 (IMF). Unemployment rates in South Korea have shown remarkable resilience, remaining historically low at 2.7% in 2023, despite weakened demand and occasional shocks. 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 increase slightly to 3.2% in 2024 and 3.3% in 2025, reflecting potential challenges in sustaining job creation amid evolving economic conditions. However, despite these projections, South Korea's labour market remains robust, indicating a steady employment environment amidst ongoing economic changes. In the medium and longer terms, however, South Korea will spend more on preparing measures to tackle the low birth rate, elderly poverty and low employment among women.

Foreign Trade

The export-oriented policies of South Korea are one of the most important factors in its economic success. The country was the world's sixth-largest exporter of goods and the eighth-largest importer of goods in 2022 (WTO), with trade accounting for 97% of its GDP (World Bank). In the same year, the country exported mainly electrical and electronic equipment (16.5% of the total), petroleum oils (9%), motor cars (7.6%), telephones (4.2%), and parts and accessories for vehicles (1.9%). Conversely, petroleum oils (18.1%), electronic integrated circuits (8.5%), petroleum gas (7.8%), coal (3.8%), and machines used for the manufacture of semiconductors (2.8% - data Comtrade).

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 (22.8% of total exports in 2022), followed by the United States (16.1%), Vietnam (8.9%), Japan (4.5%) and Hong Kong (4%). Its main suppliers are China (21.1%), the United States (11.2%), Japan (7.5%), Australia (6.1%) and Saudi Arabia (5.7% - data Comtrade). 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. According to WTO, exports of goods amounted to USD 683.5 billion in 2022, while imports reached USD 731.3 billion (+6% and +18.9% y-o-y, respectively). As per services, exports stood at USD 133 billion against USD 136 billion in imports. Despite overall exports reaching an all-time high, 2022 saw South Korea’s largest-ever trade deficit on high global energy prices. According to preliminary governmental figures for 2023, exports declined 7.4% as restrictive monetary policies in many countries and a slowing Chinese economy weakened demand for Korean goods. Moreover, South Korea experienced a trade deficit of USD 18 billion with China, marking the first time in 31 years that such a bilateral shortfall occurred between the two countries.

COVID-19 Country Response

Travel restrictions

Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.

Import & export restrictions

A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

For the general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and macroeconomic) undertaken by the government of South Korea, please consult the country's dedicated section in the IMF’s Policy Tracker platform.

Support plan for businesses

For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, 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.