The likelihood that South Korea’s annual economic growth rate for this year will rise to around 3.7% has increased. As the third-quarter economic growth rate significantly exceeded the Bank of Korea’s forecast, annual growth of 3.6% is possible even if growth stalls in the fourth quarter. This would be the highest growth rate in five years since the rebound following the shock of the coronavirus pandemic in 2021 (4.7%).
According to the Bank of Korea on the 27th, the third-quarter real gross domestic product (GDP) growth rate was 1.0%, surpassing the forecast from last August (0.3%) by 0.7 percentage points. This figure can raise the annual growth rate by 0.35 percentage points.
The Bank of Korea raised its forecast for this year’s annual growth rate from 2.6% to 3.3% in August last month. Simply reflecting the effect of the third-quarter outperformance brings the figure to 3.65%. This is the backdrop for suggestions that it may be further revised upward to around 3.7% in the revised economic outlook scheduled for November.
Major overseas institutional investors are also raising their growth rate forecasts for the South Korean economy. According to the International Finance Center, as of the end of last month, the average forecast for this year’s growth rate from eight overseas investment banks (IBs) was 3.5%, up 0.2 percentage points from a month earlier. JPMorgan presented 4.0%, and Citi presented 3.8%. The OECD also raised its growth rate forecast to 3.7% last month.
Scenarios based on the fourth-quarter growth rate are also drawing attention. According to the Bank of Korea, the cumulative growth rate for the first three quarters of this year is 3.6% compared to the same period last year. Even if the fourth-quarter growth rate remains at 0% quarter-on-quarter, the annual growth rate will record 3.6%. If growth is around 0.5% in the fourth quarter, annual growth of 3.7% is also possible.
The possibility of 4% annual growth is also arithmetically open. Lee Dong-won, Director of the Economic Statistics Division 2 at the Bank of Korea, explained, “If growth exceeds 1.4% in the fourth quarter, 4% annual growth is also arithmetically possible.”
The growth trend appears likely to continue into the fourth quarter. The Bank of Korea expects semiconductor exports to maintain a favorable flow until next year and assessed that equipment investment is trending toward expansion to supply contracted volumes.
Government fiscal spending is also expected to boost fourth-quarter growth. This is because budgets whose execution was adjusted in the first half in preparation for a prolonged Middle East war are being executed in the second half. The Bank of Korea forecast that the execution of the annual planned budget will continue into the fourth quarter, acting positively on growth.
The growth outlook for next year is also bright. In August last month, the Bank of Korea forecast next year’s economic growth rate at 2.9%. Director Lee expected that the increase in semiconductor export volume growth would be higher than this year due to the effect of expanded production of HBM (High Bandwidth Memory) next year. However, he predicted that the rate of increase in semiconductor prices will slow compared to this year.
The variable going forward is private consumption. In the third quarter, consumption decreased due to temporary factors such as an automobile strike and stock market corrections, but it was assessed that passenger car consumption recovered significantly entering October. Cash dividends from semiconductor companies, performance bonuses paid in early next year, and expanded government transfer payments are also expected to support the recovery in consumption.
Director Lee said, “Exports and investment appear likely to maintain a favorable trend,” adding, “It will be important how much private consumption rebounds.”
in ECONOMY
