South Korea’s economy posted a strong 1.30% QoQ GDP growth in Q4 2025, marking the highest quarterly expansion since early 2024. This figure outpaces the 12-month average growth rate of approximately 0.30% and signals a notable rebound from the contraction phases observed in Q2 and Q3 2025. The recovery is underpinned by resilient domestic demand and export strength despite ongoing geopolitical tensions in Northeast Asia.

Drivers this month

• Manufacturing output surged, contributing roughly 0.50 percentage points (pp) to GDP growth.
• Consumer spending rose by 0.40 pp, supported by easing inflation and improved labor market conditions.
• Exports added 0.30 pp, buoyed by semiconductor and automotive sectors.
• Government infrastructure investment contributed 0.10 pp, reflecting fiscal stimulus efforts.

Policy pulse

The Bank of Korea (BoK) has maintained a cautious stance, keeping the policy rate steady at 3.50%, balancing inflation control with growth support. The current GDP growth exceeds the BoK’s inflation target range of 2%, suggesting some room for gradual monetary easing if inflation pressures subside.

Market lens

Immediate reaction: The KRW appreciated 0.40% against the USD within the first hour post-release, while 2-year government bond yields rose by 5 basis points, reflecting optimism about growth prospects. Breakeven inflation rates remained stable, indicating market confidence in the BoK’s inflation management.

Core macroeconomic indicators reinforce the positive GDP print. Industrial production expanded 1.10% MoM in November 2025, while retail sales increased 0.80% MoM, signaling broad-based demand. The unemployment rate held steady at 3.20%, near historic lows, supporting consumer confidence and spending power.

Monetary Policy & Financial Conditions

The BoK’s policy rate has remained unchanged since September 2025, reflecting a wait-and-see approach amid mixed inflation signals. Financial conditions have eased slightly, with credit growth accelerating to 4.50% YoY, up from 3.80% six months ago. The yield curve steepened modestly, suggesting market expectations of sustained growth.

Fiscal Policy & Government Budget

Fiscal stimulus continues to play a role, with the government increasing infrastructure spending by 7% YoY in Q4. The budget deficit narrowed to 2.10% of GDP in 2025, down from 2.70% in 2024, reflecting improved tax revenues amid economic expansion. However, long-term fiscal sustainability remains a concern given demographic pressures.

Market lens

Immediate reaction: KRW/USD strengthened by 0.40%, 2-year yields rose 5bps, and inflation breakevens held steady, signaling market confidence in growth durability.

Looking ahead, South Korea’s GDP growth faces a mix of supportive and challenging factors. The baseline scenario projects 1.00% QoQ growth in Q1 2026, assuming stable global demand and continued fiscal stimulus. Bullish outcomes (30% probability) could see growth exceeding 1.50%, driven by a stronger export rebound and accelerated investment. Conversely, bearish risks (25% probability) include renewed geopolitical tensions or global tech sector weakness, potentially slowing growth to below 0.50%.

External Shocks & Geopolitical Risks

Heightened tensions in the Korean Peninsula and trade frictions with China remain key downside risks. Any escalation could disrupt supply chains and dampen export demand. Conversely, easing tensions or trade agreements could boost investor sentiment and trade flows.

Structural & Long-Run Trends

South Korea’s aging population and slowing productivity growth pose long-term challenges. However, ongoing investments in technology and green energy sectors offer growth avenues. Structural reforms aimed at labor market flexibility and innovation will be critical to sustaining growth beyond cyclical rebounds.

South Korea’s 1.30% QoQ GDP growth in Q4 2025 signals a robust economic rebound, supported by manufacturing, consumer demand, and fiscal stimulus. Monetary policy remains cautiously accommodative, balancing inflation and growth. While external risks persist, the data suggest a positive near-term outlook with potential for sustained expansion if geopolitical and global trade conditions stabilize.

Key Markets Likely to React to Gross Domestic Product QoQ

South Korea’s GDP growth influences several key markets, including equities, currency, and fixed income. The following symbols historically track GDP movements closely:

• 005930.KS – Samsung Electronics, a bellwether for South Korean industrial output and exports.
• KRWUSD – The Korean won’s exchange rate reflects economic sentiment and capital flows.
• 000660.KS – SK Hynix, sensitive to semiconductor demand and global tech cycles.
• BTCUSD – Bitcoin, often viewed as a risk-on asset, reacts to macroeconomic shifts.
• USDKRW – The inverse of KRWUSD, important for import costs and inflation outlook.

FAQs

What does South Korea’s latest GDP QoQ figure indicate?

The 1.30% QoQ growth suggests a strong economic rebound, driven by manufacturing, consumer spending, and exports.

How does this GDP print affect monetary policy?

The growth exceeds inflation targets, giving the Bank of Korea room to maintain or cautiously ease rates if inflation remains controlled.

What are the main risks to South Korea’s economic outlook?

Geopolitical tensions, global trade disruptions, and structural demographic challenges pose key downside risks.

Takeaway: South Korea’s economy is on a firmer footing entering 2026, but vigilance is needed to navigate external and structural headwinds.