South Korea

South Korea is a major Asian economy, recognized for its thriving industrial sector and electronics exports. Its rapid economic development (one of the fastest rates seen over the past decades) earned it the title of "Asian tiger". The economy is strong and modern, with sound finances and an educated and skilled workforce. However, its aging population and stance against immigration raise concerns about future economic activity. 
 
South Korea has historically exhibited solid economic growth rates, averaging +4.9% in the 2000s and +3.5% in the 2010s. The Covid-19 pandemic led to a shallow full-year recession in 2020, which was followed by a forceful recovery. Softening economic momentum into 2023 was caused by weakening external demand and a downturn in the electronics cycle. As exports rebounded, GDP growth firmed up in 2024 but geopolitical disruptions to trade as well as political uncertainties domestically resulted in headwinds to economic growth in 2025, which reached +1%. Looking forward, we expect headwinds from geopolitical uncertainties to be offset by robust global demand for AI-related goods (e.g. semiconductors), as well as domestically an ongoing recovery in consumer spending and expansionary fiscal policy. We expect South Korea’s GDP growth to reach +2.3% in 2026 and +2.1% in 2027. 

After a monetary tightening cycle with +300bps rate hikes in 2022-2023, inflation declined from 5.1% in 2022 to 2.3% in 2024. As the Bank of Korea started to ease its monetary policy from the second half of 2024, delivering four -25bps cuts in a year, inflation stabilized at 2.1% in 2025. Looking forward, we expect the Bank of Korea to deliver one additional rate cut in 2026 before staying on hold, with inflation stabilizing at 2% in 2026 and 1.9% in 2027.

Following a quarter of a century of positive budget balances, South Korea has registered annual fiscal deficits since 2020, albeit relatively small ones (around -1% of GDP on average). Narrow fiscal deficits are expected to remain the norm in the coming years. South Korea’s public debt rose from 40% of GDP in 2019 to 53% in 2025 and is forecast to remain below 60% in the next few years, a still favorable ratio compared to the OECD average that is approaching 100%. 

South Korea exhibits a strong business environment. The Heritage Foundation’s Index of Economic Freedom survey of 2025 ranks it 17th in the world for doing business and 5th in Asia. It performs especially well with regard to fiscal health, property rights, business freedom, government spending, monetary freedom and judicial effectiveness, while the labor freedom, financial freedom, investment freedom and tax burden perform relatively less well. The World Bank Institute’s annual Worldwide Governance Indicators surveys regularly assign South Korea strong scores for its regulatory and legal frameworks, though the level of perceived corruption has some room for improvement. Our proprietary Environmental Sustainability Index ranks South Korea 40th in 2025, reflecting good resilience to climate change and favorable ratios for energy use and CO2 emissions per GDP. Yet, the renewable electricity output is very low, so the government’s efforts to develop offshore wind power will need to be monitored.