South Korea’s economy unexpectedly contracted in the first quarter of 2025, weighed down by political unrest in the country and concerns around U.S. trade polices, preliminary data from the central bank showed. 

Gross domestic product contracted 0.2% quarter-on-quarter in the three months to March 31, in contrast with expectations of a steady 0.1% rise.

Year-on-year GDP shrank 0.1%, also missing estimates of 0.2% growth, and compared with a 1.2% rise in the fourth quarter of 2024.

The contraction is largely attributed to weakening exports, a result partly influenced by the protectionist trade policies implemented by U.S. President Donald Trump.

While Trump declared a 90-day pause on reciprocal duties, South Korea is still subject to a 25% tariff on steel and automobiles.

This coincided with significant political unrest in South Korea following President Yoon Suk Yeol’s declaration of martial law in December 2024. Yoon was later impeached 

The political crisis deepened when acting President Han Duck-soo was also impeached in late December. Finance Minister Choi Sang-mok then assumed the role of interim leader. The turmoil has eroded investor confidence and disrupted governance, contributing to the nation’s economic challenges.

Last week, the Bank of Korea (BOK) maintained its key interest rate at 2.75% to support the struggling Korean won, which recently hit a 16-year low while hinting at possible rate cuts in upcoming months.