South Korea's Economic Tumble: A Tempest Before the AI Boom

South Korea's economy contracted in late 2025, with investments and exports flagging. Despite this, the AI boom fuels optimism for future growth. Economists anticipate stronger growth, anchored by the semiconductor industry. The central bank aims for stable rates amidst currency pressures.

South Korea's economy unexpectedly shrank in the last quarter of 2025, experiencing its largest slump in three years due to weakened investment and exports. However, an anticipated AI boom points to a brighter economic future, allowing the central bank to maintain its steady rates strategy.

The contraction followed a significant third-quarter expansion led by President Lee Jae Myung's stimulus policies aimed at boosting domestic demand. Still, economists expect robust growth driven by the thriving semiconductor sector, despite the fourth-quarter GDP decreasing by 0.3% from the previous quarter.

Despite the downturn, domestic investments are projected to rise, influenced by prospective government infrastructure projects and expansions in semiconductor and AI sectors, while the central bank remains cautious of foreign exchange stability and economic growth risks.