South Korea's economy is poised for a strong rebound in 2024 and 2025, with the OECD projecting GDP growth to accelerate from 1.3% in 2023 to 2.6% in 2024 and 2.2% in 2025. This upward revision reflects a faster-than-expected recovery in exports, particularly semiconductors, ships, and automobiles, driven by rebounding global demand. The Asian Development Bank also forecasts economic growth to pick up from 1.4% in 2023 to 2.2% in 2024 and moderate to 2.3% in 2025 amid a tepid global recovery.
Inflation and Monetary Policy
Inflation is expected to ease in 2024 and 2025, with the OECD projecting headline inflation at 2.4%, lower than the previous forecast of 2.5%. The Bank of Korea, however, has dampened hopes for an interest rate cut in 2024, citing unexpected economic growth in the first quarter and a delay in interest rate cuts by the US Federal Reserve. The recent weakness of the Korean won relative to the US dollar and the wide interest rate gap between the two countries may lead the Bank of Korea to delay monetary easing.
Domestic Demand and Fiscal Policy
Domestic demand is expected to remain subdued in 2024 due to tight monetary and fiscal policies, then improve in 2025 as inflation continues to moderate and global oil prices stabilize. The government has announced a KRW 26 trillion (USD 19 billion) support program for the semiconductor industry, encompassing financing, infrastructure, and research and development. However, the 2025 budget proposal outlines cuts in public housing, infrastructure, and regional growth, while high-tech, healthcare, and defense sectors gain.
Key Industries and Sectors
The semiconductor industry is a major driver of South Korea's economic growth, with exports expected to rise 5.5% in 2024. Samsung Electronics, the largest South Korean company by market capitalization, is a global leader in semiconductors, supplying chips to major clients like Nvidia, Qualcomm, and IBM. Other key industries include automotive, with Hyundai and Kia among the top 25 most valuable Korean companies, and healthcare, with Samsung Biologics and Celltrion ranking highly.
The energy sector is also a significant player, with LG Energy Solution and Ecopro among the top 25 companies. The financial services sector is represented by KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group, which have been named domestic systemically important banks (D-SIBs) for 2025 and will be required to maintain a 1% additional capital surcharge.
Challenges and Reforms
Despite the positive economic outlook, South Korea faces several challenges and the need for structural reforms. The OECD has highlighted the need to adapt to an aging population through reforms in fiscal policy, labor, and pensions, recommending better fiscal rules and attracting more immigrant workers. President Yoon Suk Yeol has also pledged to create a ministry to address South Korea's low fertility rate, which fell to 0.72 in 2023, the lowest in the world.
Reforming the pension system is another priority, as nearly 40% of Koreans above the age of 65 have incomes below the poverty level. With the rise in the number of retirees and fewer workers contributing to the National Pension Service, the National Pension Fund will be exhausted by 2055. Fundamental reforms to increase the coverage of the National Pension Service, boost the contribution rate, and raise the pension eligibility age are essential.
Top 5 South Korean Companies by Market Cap
South Korea's Stock Market and Major Companies
South Korea's stock market has seen significant growth in recent years, with several major companies emerging as global leaders in their respective industries. The top 25 South Korean companies by market capitalization, based on February 7, 2024 prices, showcase the country's economic prowess.
Samsung: A Dominant Force
Samsung, the largest South Korean company by a considerable margin, has a market capitalization of over $375 billion, surpassing the economy of Qatar. The tech giant is known for its mobile phones, appliances, and semiconductors, and is the second-largest electronics company in the world after Apple. Samsung's semiconductor business supplies chips to notable clients like Nvidia, Qualcomm, and IBM.
LG Group: A Diversified Conglomerate
The LG Group, formerly known as Lucky-Goldstar, is another massive Korean conglomerate with businesses in chemicals (LG Chem), batteries (LG Energy Solution), and electronics (LG Electronics). LG Energy Solution ranks third among the top 25 companies by market capitalization, while LG Chem and LG Electronics also feature prominently.
Automotive Giants: Hyundai and Kia
South Korean carmakers Hyundai and Kia are among the top 25 most valuable Korean companies. Hyundai ranks fourth with a market cap of $45 billion, while Kia ranks sixth with a market cap of $34 billion. The automotive industry is a key driver of South Korea's economy, with the government providing support through policy loans and other measures to help businesses affected by high interest rates.
Healthcare and Biotechnology
The healthcare and biotechnology sectors have also seen significant growth, with Samsung Biologics and Celltrion ranking among the top 25 companies. Samsung Biologics, the biotech division of Samsung, ranks fifth with a market cap of $44 billion. Celltrion, a biopharmaceutical company, ranks seventh with a market cap of $28 billion.
Other Notable Companies
Other notable companies in the top 25 include Coupang, a leading e-commerce platform, Naver and Kakao, major internet and technology companies, and POSCO, a steel manufacturer. The financial services sector is well-represented, with KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group ranking highly.
Conclusion
South Korea's economic outlook for 2025 is positive, with the OECD and Asian Development Bank projecting strong growth driven by exports, particularly semiconductors. However, the country faces challenges in adapting to an aging population, reforming the pension system, and addressing low fertility rates. The government's 2025 budget proposal outlines support for key industries like semiconductors, healthcare, and defense, while cutting spending in areas like public housing and infrastructure.
South Korea's stock market reflects the country's economic strength, with several major companies emerging as global leaders in their respective industries. Samsung, LG Group, Hyundai, and Kia are among the most valuable companies, while healthcare and biotechnology sectors are also seeing significant growth. As South Korea continues to navigate the challenges of an aging population and global economic conditions, its strong economic fundamentals and innovative companies position it well for future growth and success.