South Korea's economy grew by 1.0% in the third quarter of this year, bolstered by strong semiconductor exports and capital investment. This growth rate significantly exceeds the Bank of Korea's previous forecast, suggesting a substantial upward revision of the annual economic growth outlook. However, private consumption has decreased, indicating that the growth driven by semiconductors has yet to translate into household spending.
The Bank of Korea announced on October 27 that the real gross domestic product (GDP) increased by 1.0% compared to the previous quarter. The quarterly growth rate rebounded from -0.1% in the fourth quarter of last year to 1.8% in the first quarter of this year, followed by 0.6% in the second quarter and 1.0% in the third quarter. This marks three consecutive quarters of positive growth this year.
Notably, the third-quarter growth rate surpassed the Bank of Korea's forecast of 0.3% by 0.7 percentage points. The higher-than-expected growth is likely to influence the Bank's economic outlook, which will be released next month.
Lee Dong-won, head of the Bank of Korea's Economic Statistics Division, explained at a briefing, "The third-quarter growth rate exceeding the previous forecast by 0.7 percentage points will effectively raise the annual growth rate by 0.35 percentage points."
In August, the Bank of Korea projected the annual economic growth rate at 3.3%. Bank Governor Rhee Chang-yong also hinted at a significant upward revision of growth forecasts for this year and next during a press conference on October 22.
The growth in the third quarter was primarily driven by exports and capital investment, particularly in semiconductors. Exports rose by 2.3% compared to the previous quarter, led by semiconductors, machinery, and electrical equipment. Capital investment increased by 4.1%, mainly in machinery for semiconductor manufacturing.
Construction investment grew by 0.7% due to an increase in civil engineering projects, while investment in intellectual property products expanded by 2.3% due to rising research and development and software investments. Imports also increased by 2.4%, driven by crude oil and machinery for semiconductor manufacturing.
In contrast, private consumption fell by 0.2% as spending on goods, such as automobiles and electronics, as well as services like finance and food, declined. Government consumption rose by 1.9%, primarily due to spending on goods and health insurance benefits.
In terms of growth contribution, domestic demand boosted the third-quarter growth rate by 0.9 percentage points, while net exports contributed 0.1 percentage points.
Specifically, private consumption lowered the growth rate by 0.1 percentage points, while government consumption increased it by 0.3 percentage points. The contribution of capital investment to growth was 0.4 percentage points, intellectual property investment contributed 0.2 percentage points, and construction investment added 0.1 percentage points.
Lee noted, "Despite a slight decline in private consumption, strong investment has contributed 0.9 percentage points to domestic growth. We assess that the higher-than-expected growth in the third quarter was supported by robust exports and investment."
By sector, manufacturing increased by 2.0%, driven by semiconductors and computer, electronic, and optical equipment. The construction sector also grew by 2.0% due to increased civil engineering projects, while the electricity, gas, and water supply sector rose by 3.7%, and agriculture, forestry, and fisheries grew by 5.9%. The service sector saw a 0.2% increase, led by business services, information and communication, and transportation.
Real gross domestic income (GDI) rose by 3.4% compared to the previous quarter, significantly outpacing the GDP growth rate of 1.0%. Year-on-year, GDI increased by 18.8%, marking the highest growth rate since the fourth quarter of 1977.
The rise in export prices, particularly for semiconductors, continued, while import prices, especially for crude oil and petroleum products, declined, improving the terms of trade.
The Bank of Korea anticipates that strong exports and investment will continue into the fourth quarter. Lee stated regarding the fourth-quarter growth outlook, "Exports and investment are expected to remain robust, and it is crucial to see how much private consumption rebounds."
He added, "The cumulative growth rate for the first three quarters is 3.6%. If the fourth quarter shows zero growth compared to the previous quarter, the annual growth rate would be 3.6%. If the fourth quarter growth exceeds 1.4%, an annual growth rate of 4% is possible."
* This article has been translated by AI.
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