After a period of weak growth and political unrest, the South Korean economy rebounded in the second quarter of 2025. Strong global investments in artificial intelligence gave a major boost to the country’s semiconductor industry, while other sectors are still affected by trade tensions and tariffs. The medium- to long-term outlook for South Korea’s economy and equity market remains positive, according to Mali Chivakul, Emerging Markets Economist, and Wolf von Rotberg, Equity Strategist at private bank J. Safra Sarasin.
South Korea has emerged from a phase of sluggish growth, which was aggravated by a political crisis at the end of 2024. In the second quarter, GDP expanded by 0.7% compared to the previous quarter. The surge in AI-related investment in the US and globally has significantly boosted South Korean chip exports — up 30% year-on-year in August. This revival supported industrial activity and trade. A new partnership has also been announced between Samsung, SK Hynix, and OpenAI: the two Korean firms will supply advanced memory chips for OpenAI’s AI systems. This suggests that the semiconductor sector may enjoy a more sustained growth cycle than in the past.
While the chip industry is performing well, other sectors are feeling the strain from ongoing trade frictions. Business confidence, which fell earlier this year, has yet to fully recover. The automotive industry, in particular, faces a 25% US import tariff — higher than the 15% applied to Japan and the EU. Negotiations are still under way, and Korea has pledged to increase investment in car manufacturing and shipyards in the United States. At the same time, China recently imposed sanctions on vessels operated by a Korean shipbuilder’s US subsidiary, further complicating trade relations.
Consumer confidence rebounds
Consumer sentiment has strengthened markedly in 2025 after plunging at the end of 2024 amid political turmoil. Lower interest rates (down about one percentage point) and greater political stability likely played a role. Retail sales have risen in recent months, although the pace has lagged the improvement in sentiment.
The lower rates have also fueled credit growth, particularly in mortgage lending, helping to stabilise household debt relative to national income. Housing prices — especially in the Seoul region — continue to climb.
No further rate cuts for now
Inflation has hovered around 2%, the Bank of Korea’s target. Nevertheless, the central bank has refrained from further rate cuts since May. While there is room for more easing, concerns about rapidly rising house prices have led policymakers to keep rates on hold for now.
The 2026 budget foresees an 8% increase in public spending, with priorities including AI development, defence, and social security. The government is also pursuing reforms in capital markets, the labour market — strengthening protection for flexible workers — public administration, and taxation.
South Korea’s stock market has been one of the world’s top performers since the April dip, rising more than 50% in six months, driven largely by the global rebound in chip and technology shares. The Korean tech sector alone has surged over 80% since April. Despite these sharp gains, valuations remain reasonable compared with other global tech markets.
The rally is underpinned by solid earnings growth, suggesting no signs of a bubble. Short-term momentum may soften slightly, as the supportive effect of a soft dollar fades. Yet over the longer term, the outlook for Korean equities remains strong.
