[Q&A] Bank of Korea: "Exchange Rates Are Key to Reaching $40,000 Per Capita GNI"

Bank of Korea Announces Preliminary Results for Q4 2025 and Annual National Income

South Korea's per capita Gross National Income (GNI) has remained in the $30,000 range for the 11th consecutive year since 2014, and the Bank of Korea stated that exchange rates are a critical factor in reaching the $40,000 mark. Regarding the fact that, last year, both Taiwan and Japan surpassed South Korea in per capita GNI, the Bank of Korea explained that this was due to the semiconductor boom in Taiwan, the expansion of Japan's economic scale following the revision of its reference year, as well as the impact of exchange rates.

On the morning of the 10th, the "2025 Q4 and Annual National Income (Preliminary) Press Briefing" was held at the Bank of Korea in Jung-gu, Seoul. (From left) Sungja Kim, Head of the Distribution National Income Team; Hyunyoung Lee, Head of the Expenditure National Income Team; Hwayong Kim, Director of the National Income Department; Jungseok Seo, Head of the General National Income Team; Yeji Lee, Manager of the General National Income Team. Provided by the Bank of Korea

Hwayong Kim, Head of the National Income Department at the Economic Statistics Department 2 of the Bank of Korea, made these remarks at the 'Q4 2025 and Annual National Income (Preliminary) Press Briefing' held on the morning of the 10th.

Regarding the economic growth rate for the first quarter of this year, Kim said, "Thanks to solid private consumption and exports, we expect a turnaround from negative growth in the fourth quarter of last year to positive growth in the first quarter." He added, "However, the extent of positive growth may depend on the proportion of volume in semiconductor exports and the recent deterioration of the situation in the Middle East."

The following is a Q&A session.

-Per capita GNI has remained at $36,000 for the third consecutive year. How do you assess this?

▲The per capita GNI growth rate in won terms was 4.6%, maintaining a robust growth trend. To break it down, real GDP grew by 1.0%, the deflator increased by 3.1%, and the population grew by 0.1%, all contributing to the outcome. In addition, an increase in net factor income from abroad contributed about 0.3 percentage points. However, the exchange rate rose 4.3% due to supply and demand factors, rather than the fundamentals of Korea's economy, which had a negative impact and resulted in a lower increase in per capita GNI in dollar terms.

-What are the estimates for per capita GNI in Japan and Taiwan?

▲Taiwan's per capita GNI last year was $40,585, a 14.2% increase compared to 2024, putting it at a higher level than Korea. This is because the IT manufacturing industry's share in Taiwan is about three times higher than in Korea, so it greatly benefited from the recent semiconductor boom, which significantly boosted GDP growth. For Japan, per capita GNI is calculated to be in the low $38,000 range. This was due to the expansion of the economic scale following the revision of the base year in December last year. While the exchange rate effect decreased by 1.3% in Japan and 2.9% in Taiwan, it increased by 4.3% in Korea, which also had an impact.

-Among countries with a population of over 50 million, where does Korea rank in terms of per capita GNI?

▲Since many countries have not announced their per capita GNI for 2025, it is very difficult to make direct comparisons. The only available ranking is based on the 2024 data released by the UN last week. By this measure, among countries with over 50 million people, Korea ranks about sixth, following the United States, Germany, the United Kingdom, France, and Italy. For last year, Japan ranked above Korea, placing Korea at seventh.

-When is Korea expected to reach the $40,000 mark?

▲Since achieving $30,000 in 2014, the nominal per capita GNI growth rate has averaged about 4.4%. However, the effect of exchange rates is very important. Assuming the exchange rate effect is neutral going forward, Korea would surpass the $40,000 mark in 2027.

-What is the growth outlook for the first quarter?

▲In the first quarter, private consumption and exports continued their positive trends through February, so we expect a turnaround to positive growth. For example, individual credit card spending in January and February improved compared to the fourth quarter. Customs-cleared exports, especially semiconductors, increased by 31.3% year-on-year in January and February. According to the industrial activity trends for January announced by the National Data Agency last week, facility investment and manufacturing have turned to growth, and the service sector also grew compared to the previous quarter. Therefore, we expect first-quarter growth to shift to positive from the negative in the fourth quarter of last year. However, the degree of positive growth will depend on additional statistical data, particularly how much volume accounts for the recent sharp increase in semiconductor exports.

-What impact will the recent situation in the Middle East have on first-quarter growth?

▲Since February 28, the situation in the Middle East has worsened rapidly, causing international oil prices to surge and increasing volatility in domestic financial markets. As a result of these shocks, it is inevitable that Korea's growth and prices will be negatively affected. The situation in the Middle East is changing quickly, and it is impossible to predict how each country will respond, so it is difficult to estimate the specific impact at this point. However, the economic fallout from this shock will largely depend on whether the situation is prolonged. If, as initially expected by the US government and others, the situation ends quickly, the impact on this year's growth and inflation may be limited. The Bank of Korea's Research Bureau is monitoring developments in the Middle East and considering various possible scenarios to assess the economic impact.

-By item, operating surplus is increasing more than compensation of employees. What does this mean in terms of distribution?

▲The increase in total operating surplus is due to improved corporate earnings, mainly in exports. Corporate performance has improved, especially in semiconductor manufacturing, electrical and electronic, and optical equipment industries, leading to higher operating profits. As operating profits increase, bonuses and other employee compensation may also increase.

-How has the increase in personal or overseas investment in nominal GNI affected income GNI?

▲Korea has a large volume of both overseas direct investment and securities investment, so dividends and interest income from abroad (i.e., net factor income from abroad, after deducting payments) have continued to increase. This is currently a factor boosting per capita GNI.

-The construction sector has experienced steep negative growth. What impact will this have on the future economy?

▲Construction investment fell to the point where it limited annual growth by about 1.4% last year. It has been in negative territory for about five years. However, looking ahead to this year, sluggishness is expected to gradually ease due to increased investment related to AI and expanded investment in social overhead capital (SOC). However, the recovery in residential construction is expected to be slow, as housing starts are delayed and accumulated unsold units in local areas persist.

▲At present, we do not expect construction investment to significantly constrain growth as it did last year. This is because investments in semiconductor factories, data centers, and other AI-related projects are expected to increase, and the SOC budget has also been expanded. Therefore, we expect a gradual recovery centered on non-residential and civil engineering construction. For residential buildings, in non-metropolitan areas, the accumulation of unsold units and rising construction costs will likely continue to delay housing starts. However, in the Seoul metropolitan area, sluggishness is expected to ease considerably, especially due to regional redevelopment projects.

-The gross savings rate has risen compared to the previous year. Should this be seen as a sign of weak domestic demand or as the result of increased investment?

▲The gross savings rate rose significantly, mainly due to the substantial improvement in corporate earnings, which lifted overall disposable income. The savings rate is calculated as the portion of increased income left after consumption; last year, both private and government consumption increased, but the income growth rate was higher due to greatly improved operating profit margins, so the savings rate rose even more. The domestic gross investment rate fell because domestic investment decreased, but the overseas investment rate increased compared to 2024, as income earned from abroad rose.

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