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South Korea's Economy in 2024 and the Challenges of Semiconductor Industry

In 2024, South Korea’s economy experienced modest growth of 2.0%, largely driven by a sharp rebound in semiconductor exports, which increased by 43.9% year-on-year and contributed significantly to the country’s external trade recovery. Nevertheless, domestic demand remained persistently weak, with private consumption rising by only 1.1%, while business investment contracted amid high interest rates, low consumer confidence, and geopolitical uncertainties. Inflation stood at 2.6%, above the Bank of Korea’s target, which limited room for monetary easing. The Bank maintained its policy rate at 3.5% throughout the year, placing pressure on households and corporations alike.

Toward the end of the year, a major political crisis culminated in the impeachment of President Yoon Suk-yeol, triggering market volatility, capital flight, and a sharp depreciation of the Korean won to a 15-year low. Consumer and business confidence plummeted, exacerbating economic fragility. Meanwhile, uncertainties surrounding potential U.S. trade protectionism—particularly in the semiconductor and automotive sectors—further clouded South Korea’s export outlook for 2025. In response, the government introduced a $250 billion export support plan and proposed additional fiscal and monetary stimulus to cushion external shocks.

Although the unemployment rate remained stable at 2.8%, job creation was weaker than expected, especially in services and consumer-facing industries. Fiscal pressures increased due to expanded subsidies, tax shortfalls, and higher debt issuance. Looking ahead, South Korea’s economic prospects in 2025 face multiple headwinds: global semiconductor market fluctuations, deteriorating trade conditions, and persistent political instability.

This paper offers an integrated assessment of South Korea’s macroeconomic performance, export resilience, inflation dynamics, and fiscal response, with a particular focus on the strategic challenges of the semiconductor sector. It concludes with forward-looking policy recommendations to stabilize domestic demand, diversify trade partnerships, support innovation, and safeguard macro-financial stability amid rising external and internal uncertainties.

Jiandong Shi

Researcher, MCC Center for International Economy