Construction output falls 7.9% last year, steepest drop since Asian financial crisis

South Korea's construction output last year fell by the largest margin since the Asian financial crisis, as the sharp contraction in new contracts signed in 2023 — driven by high interest rates and surging raw materials prices — worked its way through to actual construction earnings with a one-to-two-year lag.

The value of construction work completed by domestic firms last year reached 335 trillion won ($243 billion), down 29 trillion won, or 7.9 percent, from the previous year, according to preliminary results from the Ministry of Statistics' 2025 construction industry survey released Friday. The decline rate was the steepest since 1998, when output fell 12.9 percent during the Asian financial crisis.

The steep drop in construction output was largely attributed to the weak contract environment of 2023, when the total value of new construction contracts fell 12.1 percent year-on-year amid high interest rates and elevated inflation. That shortfall in work orders translated into reduced output last year.

"Contracts and completed work typically have a lag of one to one-and-a-half years, and if a project is not yet finished, it may not be reflected immediately," a Ministry of Statistics official said.

Both domestic and overseas output declined. Domestic construction output came to 297 trillion won, down 19 trillion won, or 6.0 percent, from the prior year — the steepest drop since 1998's 12.9 percent decline. Overseas output also fell, to 38 trillion won, a decrease of 10 trillion won, or 20.8 percent — the sharpest overseas decline since 2017, when it dropped 29.0 percent.

Within the domestic market, the building construction segment was the weakest performer. Building output fell 18 trillion won, or 8.0 percent, to 212 trillion won, while civil engineering output edged down 1 trillion won, or 2.0 percent, to 47 trillion won.

Public and private sectors moved in opposite directions. Public-sector output rose 3 trillion won, or 3.0 percent, to 92 trillion won, while private-sector output fell 22 trillion won, or 9.5 percent, to 204 trillion won. Output by the top 100 construction firms also declined, dropping 10 trillion won, or 8.2 percent, to 106 trillion won, accounting for 31.7 percent of total construction output.

New contracts signed last year also edged lower. Total construction contract value came to 307 trillion won, down 1 trillion won, or 0.4 percent, from the prior year, as a rise in domestic contracts was more than offset by a drop in overseas orders.

Overseas contract value plunged 12 trillion won, or 28.1 percent, to 30 trillion won, an outcome analysts attributed partly to a high base effect from large Middle East contracts secured in 2024. Nuclear power plant contracts signed last year were not included in the figures, as they are classified outside the construction industry.

Domestic contract value, by contrast, rose 11 trillion won, or 4.0 percent, to 277 trillion won. Given that contract figures feed into actual construction output after a certain period, the increase could serve as a recovery factor for domestic construction earnings going forward.

Breaking down domestic contracts by type, building construction rose 13 trillion won, or 7.1 percent, to 196 trillion won, while industrial facilities fell 2 trillion won, or 10.2 percent, to 21 trillion won. By client type, public-sector contracts grew 10 trillion won, or 11.8 percent, to 98 trillion won, and private-sector contracts increased 1 trillion won, or 0.3 percent, to 179 trillion won.

Contracts among the top 100 firms fell 3 trillion won, or 1.7 percent, to 142 trillion won, representing 46.2 percent of total construction contracts. The number of construction firms operating last year rose by 489, or 0.5 percent, to 89,590.