South Korea’s GDP misses estimates as weak consumption and construction sector growth to 6-quarter low

South Korea’s fourth-quarter GDP missed estimates on Thursday due to weakness in consumption and the construction sector, pushing growth to a six-quarter low of 1.2% year-on-year.

Advance numbers omitted The 1.4% increase expected by economists polled by Reuters was also softer than the 1.5% growth seen in the third quarter of 2024.

Quarter-on-quarter GDP growth also missed expectations, with the economy growing just 0.1%, compared to a Reuters forecast of 0.2%.

However, GDP growth for the whole of 2024 was 2%, compared to last year’s growth of 1.4%.

South Korea’s won weakened 0.13% to 1,436.4 points, while the country’s benchmark stock index Kospi decreased by 0.47%.

This was reported by the Bank of Korea that in 2024, private consumption growth declined and investment in the construction sector fell, but government consumption, investment in facilities and export growth increased.

The BOK also reported that growth in the services sector as well as the construction industry declined, but manufacturing grew at a faster pace compared to last year.

“We suspect that activity may remain subdued in the near term due to the ongoing political crisis and a gloomy outlook for the construction sector,” Shivaan Tandon, markets economist at economic data provider Capital Economics, said in a note after the GDP release.

Domestic demand remains the main source of weakness in the economy, Tandon said, noting that sequential growth in consumer spending slowed to just 0.2% from 0.5% in the third quarter.

He expects growth to be 1.1% this year, which is much lower Latest BOK forecast 1.6%-1.7% growth in 2025.

The GDP readings came after the Bank of Korea made two surprising moves in recent months, first cutting rates by 25 basis points in late November and then keeping rates on hold at its Jan. 16 meeting. The BOK policy rate is now 3%.

“Weakening risks to economic growth have intensified and exchange rate volatility has increased due to unexpected political risks that have recently escalated… Export growth is expected to slow and domestic demand to recover at a slower pace than expected,” the BOK warned after its latest meeting monetary policy.

Consumer sentiment in South Korea collapsed in December after impeached President Yoon Suk-yeol briefly declared martial law.

The consumer sentiment index fell to its lowest level since November 2022 at 88.4 in December, suggesting that consumers have become pessimistic about the economy. The indicator for the previous month was 100.7.

The index recovered to 91.2 in January, but it still did not reach the 100 mark that separates consumer pessimism from optimism.

— CNBC’s Annick Bao contributed to this report.