South Korea's economy grew faster than market forecasts for a third straight quarter on a semiconductor boom, though private consumption fell for the first time since 2022 as interest rate increases and a recent stock market decline weighed on households. Analysts said the growth led by chipmakers has yet to spread to households.
Gross domestic product expanded 1.0% in the third quarter from the previous quarter, more than triple the Bank of Korea's August forecast of 0.3%, according to advance estimates released by the central bank on the 27th. On a year-on-year basis, the economy grew 3.4%, the highest rate since the first quarter, when it expanded 3.8%.
Expectations are also building that the economy could grow more than 4% this year. "If fourth-quarter growth maintains the current trend, annual growth will come in at about 3.9%, and growth of 4% for the year is possible if the fourth quarter expands 1.4% or more," said Lee Dong-won, head of the Bank of Korea's economic statistics department II.
Semiconductor exports have driven the recent strength. Exports rose 2.3% from the previous quarter, led by chips and machinery and electrical equipment, while facility investment climbed 4.1% and government consumption increased 1.9%. Domestic demand contributed 0.9 percentage points to growth and net exports 0.1 percentage point. Computers, electronics and optical equipment accounted for an estimated 60% of year-on-year growth.
Private consumption fell 0.2% from the previous quarter as spending on both goods and services declined. It was the first drop since the fourth quarter of 2022, during the COVID-19 pandemic. Lower trading volumes amid the stock market correction and delayed vehicle deliveries caused by a strike at an automaker weighed on the figure. Without those temporary factors, private consumption would have risen 0.4%, the central bank said.
Real gross domestic income surged 18.8% from a year earlier, the fastest increase in 48 years and nine months, or since the fourth quarter of 1977. Higher semiconductor prices and lower prices for imports such as crude oil improved the terms of trade.
With the economy posting a third consecutive quarter of surprise growth, attention is turning to the Bank of Korea's rate decision in November. Analysts expect the strong third-quarter performance makes it even less likely that the central bank will delay a rate increase.