The Korean economy grew by 1.0% in the third quarter of this year, expanding its growth momentum compared to the previous quarter. Strong semiconductor exports and increased equipment investment drove the growth. Recording a higher growth rate than initially expected has also increased the possibility of annual growth in the high 3 percent range for this year.
According to the Bank of Korea on Tuesday, real GDP grew by 1.0% quarter-on-quarter (same basis hereinafter) in the third quarter of this year. To two decimal places, it was 0.97%. Year-on-year, it increased by 3.4%.
The quarterly growth rate rebounded sharply from -0.1% in Q4 last year to 1.8% in Q1 this year, then slowed to 0.6% in Q2 before rising again to 1.0% in Q3.
The Q3 growth rate exceeded the Bank of Korea's previous August forecast (0.3%) by 0.7 percentage points. Lee Dong-won, Director of the Economic Statistics Division 2 at the Bank of Korea, stated, "The portion exceeding the Q3 forecast could act as a factor raising the annual growth rate by 0.35 percentage points." Simply reflecting this in the Bank of Korea's existing annual growth rate forecast (3.3%) would result in 3.65%.
Director Lee said, "The cumulative growth rate through Q3 is 3.6% year-on-year," and explained, "Even if the Q4 growth rate remains at 0% quarter-on-quarter, annual growth will be 3.6%, and if it grows by more than 1.4% in Q4, an annual growth of 4% is also arithmetically possible."
Exports in Q3 this year increased by 2.3%, centered on semiconductors and machinery/electrical equipment. This was an expansion from the previous quarter's growth rate (1.3%). Imports of crude oil and semiconductor manufacturing machinery, among others, also rose by 2.4%. The contribution of net exports to growth was 0.1 percentage points.
Director Lee explained, "It is estimated that semiconductors account for about half of overall economic growth," adding, "Next year, the volume growth rate will be higher than this year due to the effect of HBM production, but we expect the price increase rate to slow down somewhat."
Private consumption decreased by 0.2% as both goods consumption, such as passenger cars and home appliances, and service consumption, such as finance and food, declined. This is the largest decrease in four years and six months since Q1 2022 (-1.0%). The contribution of private consumption to growth was recorded at -0.1 percentage points. In contrast, government consumption increased by 1.9%.
Director Lee stated, "The decline in financial service consumption due to stock market adjustments and delays in vehicle deliveries due to the first full-scale completed car strike in 10 years had an impact," adding, "We estimate that without these two special factors, private consumption would have increased by 0.4% instead of decreasing by 0.2%."
Investment also improved. Equipment investment increased by 4.1%, centered on semiconductor manufacturing machinery, among others. Intellectual property product investment and construction investment increased by 2.3% and 0.7%, respectively. The contribution of total domestic demand to growth was 0.9 percentage points, expanding from the previous quarter (0.3 percentage points).
Director Lee said, "As the Middle East war broke out in Q2, the government had a tendency to conserve budget execution in the first half in preparation for the possibility of it becoming prolonged," and added, "We understand that in Q3, expenditures were made on equipment investment such as large-scale construction projects and GPU imports."
By economic activity, manufacturing increased by 2.0%, centered on computer/electronic/optical instruments and machinery/equipment, among others. The construction industry also grew by 2.0% as civil engineering construction increased. In contrast, the growth rate of the service sector slowed from 1.0% in the previous quarter to 0.2%.
Real Gross Domestic Income (GDI) in Q3 this year increased by 3.4%, significantly exceeding the real GDP growth rate. Year-on-year, it increased by 18.8%, recording the highest growth rate in 48 years and nine months since Q4 1977 (19.0%).
The key to future growth momentum is whether private consumption recovers. Director Lee said, "Exports and investment appear to continue their strong performance," adding, "It will be important how much private consumption rebounds."
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