South Korea’s gross domestic product (GDP) declined in the first quarter of 2025.

The Bank of Korea (BOK) said on Thursday that the country’s real GDP contracted by 0.2 percent in the first quarter compared to the previous quarter. This figure is 0.4 percentage points lower than the central bank’s forecast of 0.2 percent just two months ago in February and the first time in nine months that quarterly growth has turned negative since the second quarter of 2024 when it contracted 0.2 percent.

While the contraction in the second quarter of 2024 was largely due to a base effect following an unexpected 1.3 percent growth in the previous quarter, the latest “shock” is more serious as even the weak growth of 0.1 percent in the fourth quarter of that year failed to hold.

The BOK initially expected the country’s economic sentiment to improve in February and March 2025, along with a recovery in semiconductor exports. However, political uncertainty stemming from the December 2024 declaration of martial law and the subsequent impeachment led consumers to tighten their wallets, while the inauguration of the second Trump administration in the United States negatively impacted global trade.

Unexpected disasters, such as large-scale wildfires, also chilled the economy.

Construction investment fell 3.2 percent in the first quarter of 2025 for a fourth consecutive quarter, while facility investment (-2.1 percent), private consumption (-0.1 percent), and government consumption (-0.1 percent) all declined compared to the previous quarter.

Both exports and imports also contracted by 1.1 percent and 2 percent respectively.

Regional economies are facing the worst conditions, with the BOK’s regional business sentiment index showing the lowest scores in South Jeolla Province, Jeju, South Gyeongsang Province, and Busan.

“Korea’s export-driven economy is vulnerable to trade tensions,” BOK Governor Rhee Chang-yong said in an interview with CNBC in the United States on Thursday. “We will be affected directly by the U.S. tariffs [and] also indirectly by its tariffs on other countries.”

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