South Korea: Economic and political outline

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.

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 29.2 million people out of its 51.74 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 represents 31.7% of the GDP and employs 25% of the workforce (World Bank, latest data available). Once characterized by resource scarcity, 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 the world's seventh-largest steelmaker), car manufacturing, shipbuilding and electronics (South Korea is the world's second-largest producer of semiconductors, which represents its main export). In 2023, the seasonally-adjusted production index across all industries, excluding agriculture, livestock, and fishery sectors, increased by 0.7% compared to the previous year, as per Statistics Korea. While industrial output continued to rise for the third consecutive year, the manufacturing sector experienced its most significant decline since 1998, amidst the fallout of the foreign exchange crisis in Asia. Manufacturing output plummeted by 3.9% last year, primarily due to a sharp decline in semiconductor production, marking the first downturn in 22 years since 2001. Manufacturers reported an average capacity ratio of 71.3% in 2023, reflecting a decrease of 3.5%age points from the previous year.

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. South Korea's mineral resources are limited to gold and silver. Statistics Korea (KOSTAT) issued its final assessment of 2023 rice production, indicating a total of 3.7 million metric tons, marking a 1.6% decrease compared to the previous year.

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), especially department stores, store chains and supermarkets. Tourism is one of the leading sectors: from January to November 2023, South Korea welcomed a total of 9,995,000 visitors, reflecting an impressive surge of 275.9% compared to the corresponding period in the previous year. However, despite the rebound, the number of visitors only reached 62% of the levels observed during the same timeframe in 2019 (data Korea Tourism Organization ). Overall output in the services industry went up 2.9% in 2023 after advancing 5% in 2021 and 6.7% in 2022 (data Statistics Korea).

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 Yeol (since 10 May 2022)

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 world. 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 its 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 (former Prosecutor General), 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 U.S. 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.
In June 2023, the Yoon Suk-yeol administration of South Korea unveiled its National Security Strategy (NSS). The strategy vows to transform Korea into a "global pivotal state," actively defending liberal democracy and fostering global prosperity. It further solidifies the Yoon administration's strategic realignment with longstanding allies and partners like the United States and Australia, especially amidst ongoing North Korean missile tests and diplomatic strains with China.

Main Political Parties

The most influential parties in South Korea include:

- Democratic (Minjo) Party: centrist-liberal political party, advocating for human rights, improved relations with North Korea, and a "new progressivism" economic policy
- People Power Party or PPP (formerly Liberty Korea Party): right-wing, conservative, currently the  second-largest party in the National Assembly
- Justice Party: centre-left; organised around progressivism
- Green Party: founded in 2012, champions ecological wisdom, social justice.
Other parties include the Basic Income Party (BIP), the Progressive Party (Minjung), and the New Reform Party (NRP).

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 the 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 statutory 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.