Despite strong export performance, South Korea’s economy is facing challenges in the form of weak household consumption. Retail sales data has shown continued weakness in consumer spending, which economists predict will remain a weak point for the economy in the near term. This is due to elevated interest rates and a cooling labor market weighing on demand.
Looking ahead, economists are optimistic about the manufacturing sector and exports remaining strong, supported by global demand for semiconductors. However, concerns about uneven growth in China, South Korea’s biggest trading partner, could impact the ongoing recovery. Additionally, high levels of debt and interest rate hikes by the Bank of Korea have restrained spending, further impacting consumption.
On a year-on-year basis, GDP is forecasted to have expanded by 2.4% in the last quarter, faster than the previous quarter. This would mark the fastest growth rate since Q3 2022. However, this growth was driven primarily by an uptick in export performance, particularly in the semiconductor sector, indicating global trade health. Despite these challenges, South Korea’s economy continues to show resilience and is expected to maintain its current rate of expansion in the near term.