South Korea’s GDP contracted 0.1% year on year in the first quarter, according to advance figures, marking the first contraction in its economy since the fourth quarter of 2020.

The GDP figure missed the 0.1% rise expected by a Reuters poll, and is a reversal compared to the 1.2% rise in the last quarter of 2024.

Data from the Bank of Korea showed that the drop was mostly due to a fall in construction, with the sector contracting 12.4% year on year.

On a quarterly basis, GDP shrank 0.2%, reversing from the 0.1% gain in the last quarter of 2024.

In its monetary policy statement on April 17, the Bank of Korea had warned that South Korea’s GDP growth for 2025 is expected to fall below its February forecast of 1.5%. The central bank had held rates at 2.75% at the April meeting.

The BOK noted domestic economic growth has been weaker than expected, as domestic demand and exports have both slowed due to prolonged political uncertainties and deteriorated trade conditions.

An April 17 note from Jeff Ng, Head of Asia Macro Strategy at Sumitomo Mitsui Banking Corporation had expected the slowdown, adding that there may be more cuts by the BOK “in the coming months.” He forecasts the next rate cut to come in May.

In an April 24 note, ANZ said the data showed that there was a broad-based pullback in the economy amid domestic political turmoil and rising global trade tensions.

The bank added that “the challenging growth backdrop warrants a stronger policy response,” forecasting that the BOK will deliver two to three more rate cuts by the end of the year and for fiscal stimulus to exceed 1% of GDP in 2025.

South Korea’s first quarter has been marked with political uncertainty, as the impeachment trials of former president Yoon Suk Yeol and prime minister Han Duck-soo dragged on.

The Constitutional Court struck down Han’s impeachment in March and reinstated him as acting president, before removing Yoon from office on April 4. South Korea will go to the polls on June 3 to select a new president.

The country’s export-led economy has also been struck by the trade war turmoil. While U.S. President Donald Trump had temporarily suspended his blanket “reciprocal tariffs” on April 9, South Korea is still subject to a 25% tariff on steel and automobiles, which are some of the country’s largest exports to the U.S.

ANZ added, “While South Korea has good odds of negotiating a trade deal with the US, its electoral calendar may extend the timeline for a comprehensive agreement. A new government will be in place following the 3 June election and its stance will likely shape the outcome of negotiations.”

South Korea’s Hyundai and Kia are among the top eight best-selling brands in the U.S. The country is also the fourth largest exporter of steel to the U.S.

The GDP release also comes as a South Korean team heads to the U.S. for trade talks, with acting president Han reportedly saying that he expects talks with the U.S to pave the way for a mutually beneficial outcome.

South Korea’s ministry of trade, industry and economy said on Thursday the agenda for the meeting with the U.S. is being coordinated and not yet finalized.