South Korea stumbles: Economy slows, Leaders resign amid US talks

In 2025, South Korea's economy is grappling with multifaceted challenges, both from internal stagnation and mounting external pressures. The nation's GDP is projected to grow by only 1.6%, down from 2.0% in 2024, highlighting the sluggish recovery in domestic demand. Meanwhile, the country’s export sector — long considered a pillar of its economic strength — is also showing signs of slowing.

Private consumption is expected to improve slightly, rising from 1.1% to 1.6%, bolstered by interest rate cuts and easing political tensions. However, uncertainty continues to loom over investment. Notably, construction investment is projected to shrink for a second consecutive year, by -1.2%, following a -2.7% contraction in 2024. This decline is attributed to weak new orders and tightened financing conditions in the construction sector.

Exports, the engine of South Korea’s economy, are also losing momentum. Export growth is expected to fall sharply from 6.9% in 2024 to 1.8% in 2025 amid a deteriorating global trade environment. While the semiconductor sector maintains some positive momentum, global trade forecasts for semiconductors in 2025 have been revised downward — from 25.2% to 13.4% — dampening hopes for a strong rebound.

Adding to the economic headwinds, oil prices remain steady around $75 per barrel, and the Korean won shows little fluctuation. Although the current account surplus is still substantial at around $90 billion, it marks a decline from $99 billion the previous year.

Inflation is projected to ease from 2.3% to 1.6%, reflecting the weak domestic demand. Meanwhile, the unemployment rate is expected to edge up slightly to 2.9% from 2.8%, with job creation slowing to 100,000 new jobs, down from 160,000 in the previous year. This points to a shrinking working-age population and lingering demand-side weakness.

Compounding economic concerns is an escalating political crisis. South Korea's top economic policymakers have tendered their resignations at a critical moment for trade negotiations with the United States.

Prime Minister Han Duck-soo, serving in a caretaker capacity, announced his resignation on May 1 to prepare for a presidential bid. Simultaneously, Deputy Prime Minister and Finance Minister Choi Sang-mok, expected to assume Han’s role, also resigned, just before the opposition filed a motion to impeach him.

Following his resignation, Choi publicly apologised for stepping down during a time of economic instability, both domestically and globally. Analysts warn that this leadership vacuum comes at a sensitive time, as South Korea must finalise strategies for the recently initiated “2+2 Trade Consultation” with the United States, covering key areas such as taxation, investment, economic security, and exchange rates.

The sudden departure of key economic officials is expected to delay strategic planning and inter-agency coordination, particularly on foreign exchange issues, which have become central to bilateral tax discussions with Washington.

Education Minister Lee Ju-ho has stepped in as acting prime minister, though questions remain about his ability to navigate complex international economic negotiations.

Meanwhile, the People Power Party (PPP) has accused the Democratic Party of weaponising Choi’s impeachment as political retaliation, particularly after the Supreme Court ordered a retrial in an election law case involving opposition presidential candidate Lee Jae-myung. The PPP criticised the move as “gutter politics” and warned against using political vendettas to target individuals.

As political instability deepens and public and investor confidence wanes, South Korea faces structural economic challenges that could persist beyond 2025. While the low GDP growth figure already raises concerns, the broader risks to economic governance and strategic policymaking may have more far-reaching consequences in the long term.