South Korea: Economic and political outline

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 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).

Source: World Bank, Latest data available.

Indicator of Economic Freedom

Score:

74/100

World Rank:

24

Regional Rank:

7

Business environment ranking

Score:

7.50/10

World Rank:

24/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

Sources of General Economic Information

Ministries

Ministry of Trade, Industry and Energy
Korea Communications Commission (KCC)
Ministry of Foreign Affairs
Ministry of Environment (MOE)
Ministry of Health and Welfare (MOHW)
Ministry of Agriculture, Food and Rural Affairs

Statistical Office

Korea National Statistical Office
Korean Statistical Information Service

Central Bank

Bank of Korea (BOK)

Stock Exchange

Korea Exchange

Other Useful Resources

Korean Customs Service
Korea Institute of Public Finance (KIPF)

Main Online Newspapers

Korea Times
The Chosun Daily
The Dong-A Ilbo

Economic Portals

Korean Culture and Information Service (KOCIS)

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

Current Political Context

Political unrest in South Korea was severe in 2024. In fact, President Yoon Suk Yeol imposed martial law on December 3 after accusing the Democratic Party of "anti-state activities" and working with "North Korean communists" to weaken the country. Press freedom and political activity were halted by this pronouncement. Protesters and security officers clashed as a result of the move's instant opposition. After around six hours, Yoon lifted martial law in response to growing pressure. Citing abuse of power, the National Assembly impeached President Yoon on December 14 by a vote of 204 to 85. After Yoon was suspended, Prime Minister Han Duck-soo took over as interim president.  However, on December 27, the National Assembly also impeached Han, with a unanimous vote of 192-0, due to his association with Yoon's controversial actions. Consequently, Deputy Prime Minister Choi Sang-mok became the acting president. The Constitutional Court now has 180 days to determine whether to uphold or overturn Yoon's impeachment. These events have led to significant political instability in South Korea, with ongoing protests and declining consumer confidence.
The Korean peninsula remains one of the most protracted and volatile zones in the world. The United States and South Korea held combined military exercises in 2024, which North Korea perceived as provocative invasion manoeuvres. North Korea responded by promising the "toughest" response to perceived threats and testing a sea-to-surface strategic cruise missile system in December 2024.

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).

Type of State

South Korea is a presidential republic. It is composed of 9 provinces, 7 metropolitan cities (Seoul, Busan, Incheon, Daegu, Gwangju, Daejeon, and Ulsan), and the Sejong Special Autonomous City.

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.

Indicator of Freedom of the Press

World Rank:

42/180

Indicator of Political Freedom

Ranking:

Free

Political Freedom:

2/7

Civil Liberties:

2/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House