South Korea’s unemployment rate edged down to 2.5% in July, compared to 2.6% in June and market expectations. However, underlying indicators were less positive than the headline figure implies. The labour participation rate fell to 64.4%, marking its third consecutive monthly decline. Private sector hiring remained subdued. Manufacturing employment, meanwhile, decreased for the second month in a row. Construction has shed jobs in six of the past seven months in 2025. The sector is expected to be a significant drag on overall growth, with conditions potentially more challenging than we had previously thought.
This would add downside risk to our GDP growth forecast of 1.2% year on year for 2025. In the service sector, wholesale and retail (-23k) and accommodation/food services (-35k) lost jobs amid weak domestic activity, while health and social work (+51k) and transportation (+43k) saw gains. By category, self-employed jobs increased, while wage/salary workers declined, suggesting the labour market remains vulnerable. We believe that government measures to boost domestic demand may strengthen the labour market, albeit mostly in low-income/low-skilled jobs, in the coming months.