South Korea’s economy grows at slowest pace in five years

January 22, 2026 / 11:30 AM

Sharjah24 - AFP: South Korea logged its slowest economic growth in half a decade in 2025, with the economy expanding by just one percent, the country’s central bank said on Thursday. Asia’s fourth-largest economy has been weighed down by sluggish domestic demand, a troubled housing market and political uncertainty following former president Yoon Suk Yeol’s martial law declaration, which plunged the country into chaos.

Exports provide rare bright spot

Last year’s growth was the weakest since 2020, when the economy contracted after the outbreak of Covid-19. Exports, however, rose by 4.1 percent, supported by strong demand linked to the artificial intelligence boom, while imports increased by 3.8 percent. The central bank noted continued export growth alongside expanded private and government consumption.

Construction slump and manufacturing slowdown

The decline in construction investment deepened due to ongoing problems in the real estate sector, while growth in manufacturing slowed. The economy also contracted in the October–December period, partly due to a base effect after strong third-quarter growth, with weak construction investment further dragging on overall performance.

Semiconductors support market optimism

Despite the slowdown, South Korea’s key semiconductor firms, including Samsung Electronics and SK hynix, continued to benefit from global AI-related demand. On the back of this strength, the benchmark Kospi index broke 5,000 for the first time on Thursday.