South Korea: Economic and political outline

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 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.

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 Ilbo
Dong-A Daily

Economic Portals

Korean Culture and Information Service (KOCIS)

Political Outline

Current Political Leaders

President: Yoon Suk-youl (since 10 May 2022)
Prime Minister: 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

Type of State

South Korea is a presidential republic. It is composed of 9 provinces and 6 cities with autonomous administration (Seoul, Busan, Incheon, Daegu, Gwangju, Daejeon).

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.

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

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.