South Korea Country Risk Report

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 +3.3% in the 2010s. The Covid-19 pandemic led to a shallow full-year recession in 2020, with GDP contracting by just -0.7%. The recovery thereafter was forceful (+4.2% in 2021), before a moderation in growth to +2.6% in 2022 and +1.4% in 2023, in particular in the context of weakening external demand and a downturn in the electronics cycle. GDP growth should firm up looking ahead, reaching +2.4% in 2024 and +2.3% in 2025 and 2026, driven by a recovery in global trade and the electronics cycle, real household income growth and monetary easing by the Bank of Korea (BoK). However, risks are likely on the downside, in the context of geopolitical tensions and higher trade tariffs imposed by the US.

Inflation in South Korea declined from 5.1% in 2022 to 3.6% in 2023, remaining significantly lower than the OECD average. Inflation eased further to an estimated 2.4% in 2024 and is expected to stabilize at 2.1% in 2025 and 2026. This should allow the BoK to extend its monetary easing cycle that started in 2024 into 2025-2026.

South Korea exhibits a strong business environment. The Heritage Foundation’s Index of Economic Freedom survey of 2023 ranks it 15th in the world for doing business and 5th in Asia. It performs especially well with regards 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 88th in 2024, 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.

After the tight election in 2022, President Yoon Suk Yeol of the conservative People Power Party (PPP) has been focusing on deregulation and tax cuts, as well as generally ideologically conservative policies. The April 2024 legislative election further exacerbated the split between executive and legislative powers as opposition parties increased their dominance in the unicameral parliament (led by the Democratic Party). South Korea hovers around the 22^nd place in the Economist Intelligence Unit’s Democracy Index and is described as a “full democracy”. Meanwhile, relations with North Korea are not expected to improve under the presidency of Yoon Suk Yeol, in part given the context of still simmering tensions between China, North Korea and the US.