Growth in chip-led exports, private spending presents silver lining
The South Korean economy returned to growth in the second quarter of 2025, potentially indicating an end to over a year of sluggish growth, the country’s central bank announced Thursday. The rebound was driven primarily by gains in exports and a pickup in private consumption.
The country's real gross domestic product — a key measure of economic growth — inched up 0.6 percent in the April-June period, marking a strong rebound from the 0.2 percent contraction in the previous three months, according to an advance estimate compiled by the Bank of Korea.
The Korean economy outperformed the BOK’s previous projection by 0.1 percentage point. In May, the central bank suggested the economy would advance by 0.5 percent in the second quarter.
Though still below 1 percent, the 0.6 percent growth is meaningful as it could indicate an end to the cycle of low growth, the BOK suggested. After posting 1.2 percent growth in the first quarter of last year, the economy had hovered around zero growth for over a year, even contracting in two quarters.
“Although future growth prospects remain highly uncertain due to factors such as the US tariffs, the performance is meaningful as it signals a relief from the sluggish growth seen over the past year," Lee Dong-won, a senior official of economic statistics at the BOK, said at a press briefing held Thursday.
“Looking at the growth contribution, strong exports and private consumption were the main drivers of growth in the second quarter, both of which returned to positive territory.”
Exports, mainly led by the semiconductor sector, rose by 4.2 percent in the second quarter, rebounding from a 0.6 percent contraction in the previous quarter. Private consumption expenditure also increased by 0.5 percent, recovering from a 0.1 percent decline on-quarter.
Lee assessed that the economy will take on a different trajectory in the second half of 2025, when the US administration’s tariff policy is expected to take effect in full force.
“Up until the second quarter, the US tariffs had a limited impact on the economy,” Lee said. “Though exports led the recovery in the second quarter, the tariffs are expected to take a toll on the local economy from the third quarter onward.”
“But domestic demand may improve further, supported by a recovery in consumer sentiment and the effects of the second supplementary budget,” Lee said, referring to the country's stimulus coupon program.
The latest figure has renewed hopes that the Korean economy could reach 1 percent growth this year. While the BOK projected 0.8 percent annual growth in May, the rate was expected to rise to around 0.9 percent with the added boost from the second extra budget.
“As Korea is yet to strike a tariff deal with the US, it is difficult to say whether the country will achieve growth of 1 percent this year or not,” Lee said.
"By simple calculation, an average of 0.7 percent growth in the second half is needed for the annual growth rate to reach 0.9 percent. A 0.8 percent growth in the second half would make the annual growth rate reach 1 percent.”
While Japan has recently struck a tariff deal with the US, cutting tariffs to 15 percent, Lee noted that Korea’s economic outlook would likely remain largely unchanged if it manages to secure a similar agreement.
“If Korea strikes a deal on par with Japan’s, the outlook is unlikely to deviate significantly from the projection made in May. Since the 15 percent tariff would be only slightly worse than expected, the forecast may still hold for the second half,” Lee said.
silverstar@heraldcorp.com
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