New Delhi: South Korea's economy, which experienced weak growth in 2023, is projected to make a slow but steady recovery due to increasing exports, controlled inflation, and lower interest rates, according to the October 2024 Rubix Country Insights report by Rubix Data Sciences. This comprehensive report delves into South Korea’s economic outlook with a special emphasis on its trade relationship with India.
The report notes that the South Korea-India trade partnership continues to grow, supported by ongoing discussions to reduce trade barriers in key sectors like electronics, petrochemicals, and automotive. Despite a rising trade deficit, both nations aim to enhance collaboration across these industries.
In recent years, South Korea’s economic performance has fluctuated. The economy saw a 4.3 percent GDP growth in 2021 due to high semiconductor demand during the pandemic, yet global economic challenges and high inflation slowed this growth in 2022 and 2023. This year, South Korea’s GDP is expected to see a modest 2.5 percent growth, driven by stronger exports and stable financial conditions.
However, the Rubix report warns that high interest rates may dampen domestic demand, potentially resulting in lower growth of around 2.2 percent in 2025. South Korea's central bank, the Bank of Korea, cut interest rates in October 2024 by 25 basis points to 3.25 percent, following nearly two years of stable rates. The impact of this cut on economic activity remains uncertain.
Exports remain a critical pillar of South Korea's economy, constituting nearly 40 percent of its GDP, with China and the United States as its primary trading partners. However, export values fell by 7.5 percent in 2023 to USD 632 billion, marking the first decline since 2020, driven by weaker global demand and high interest rates in major economies.
South Korea recorded a trade deficit of nearly USD 10 billion in 2023, a marked decrease from the USD 48 billion deficit in 2022. Though China remains South Korea’s largest export market, the export gap between China and the United States has narrowed due to declining demand from China and increased local competition.
India faces a growing trade deficit with South Korea
Meanwhile, India faces a growing trade deficit with South Korea, reaching USD 14.7 billion in FY2024, up from USD 9.4 billion in FY2022. In response, India is revisiting its Free Trade Agreement (FTA) with South Korea, advocating for reduced duties on Indian exports such as agricultural products, textiles, and electronics. India also seeks improved market access for steel, rice, and shrimp.
South Korea launches USD 19 billion support package in global market
To strengthen its semiconductor industry, South Korea recently launched a USD 19 billion support package aimed at bolstering competitiveness in the global market. Announced by President Yoon Suk Yeol in May 2024, this initiative offers financial aid for R&D, tax incentives, and support for Small- and Medium-sized Enterprises (SMEs) in the sector.
In its pursuit of expanded global alliances, South Korea has also forged new trade agreements with countries like the UAE, New Zealand, and Thailand, as well as nations across Africa, marking significant steps towards diversifying trade partnerships worldwide.
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