Bank of Korea officials attend a press briefing at the central bank's headquarters in Seoul, Thursday. Yonhap

The Korean economy grew 2 percent in 2024 from the previous year, lower than the earlier projection of 2.2 percent, crippled by an unexpected significant dent in expansion in the fourth quarter amid President Yoon Suk Yeol's martial law fiasco, according to the central bank, Thursday.

The October-December growth was limited to 0.1 percent, down from the earlier forecast of 0.5 percent, the Bank of Korea (BOK) said. The construction sector struggled with sustained high borrowing costs. Political uncertainties slowed down the growth in private spending.

Further clouding the 2025 forecast is carryover from the fourth quarter, as the BOK revised down its growth projection, Monday, to as low as 1.6 percent from the earlier 1.9 percent.

Economists warn that the figure could dip further if no breakthrough is found in the current political wrangling and sluggish domestic consumption. Also coming into play will be the U.S. Donald Trump administration's threat to impose tariffs on goods imported from Korea and other nations.

“The construction sector took a dive, with orders and initiation of projects both remaining low,” a BOK official said.

Other downward factors include the government's tighter macroprudential measures that have led to a slowdown in housing transactions, and builders bearing higher labor costs and construction expenses.

“Heightened political uncertainty has weakened business sentiment, as illustrated by key indexes going into freefall last month," he said. "Credit card spending as well as business and consumer confidence figures all dropped. The development will continue to weigh on the economy in the form of low growth in the quarters to come.”

Private consumption grew 1.1 percent last year, down from 1.8 percent in 2023. Construction investment contracted 2.7 percent, a significant downturn from a growth of 1.5 percent.

Net exports, as measured by exports minus imports, boosted growth by 1.8 percentage points last year, while construction investment shaved off the growth by 0.4 percentage points.

Danny Kim of Moody's Analytics said the fourth-quarter GDP result was a disappointment.

“It missed our growth forecast of 0.7 percent. The figure on a year-on-year basis was a growth of 1.2 percent, the poorest outcome since the second quarter of 2023,” he said.

Technology goods, including semiconductors, boosted exports in the fourth quarter, in his view, but looming tariffs are a concern for the trade-reliant economy.

The trade surplus with the U.S. has ballooned, buoyed by automotive exports. But the growth-driver industry is among targets for tariffs.

“The export-driven economy is vulnerable to trade tensions between China and the U.S.,” he said. “We expect the composition of GDP growth to gradually shift toward domestic demand amid easing inflation and interest rate cuts. That said, bolstering confidence won't be easy due to the country's political situation.”