South Korea's gross domestic product grew 1.0% in the third quarter from the previous quarter, marking the third consecutive quarter in which growth exceeded the Bank of Korea's forecast. The figures indicate that chip-led growth is proving stronger and more durable than initially expected. With the economy holding firm even after back-to-back rate increases in July and August, analysts say the central bank has gained room to maneuver in setting monetary policy.
Real GDP grew 1.0% from the prior quarter in the July-September period, exceeding the BOK's August forecast of 0.3% by 0.7 percentage points, the central bank said on the 27th. First-quarter growth also came in at 1.8%, beating the 0.9% forecast by 0.9 percentage points, while second-quarter growth of 0.6% topped a 0.2% projection. It is the first time actual growth has exceeded forecasts for three straight quarters since the BOK began publishing its quarterly growth projection path in August 2024. Lee Dong-won, head of the BOK's Economic Statistics Department II, said that the third-quarter beat alone raises the annual growth rate by about 0.35 percentage points.
Exports and investment, led by semiconductors, drove the expansion. Rising chip demand lifted not only exports but also manufacturing output and facility investment. Investment in semiconductor manufacturing equipment in particular has increased, expanding production capacity. The BOK expects chip volumes to keep rising next year on expanded production of high-bandwidth memory.
Notably, semiconductors account for a growing share of the economy, amplifying their impact on headline growth. Lee Nam-kang, an economist at Korea Investment Holdings, projected that information technology hardware's share of nominal GDP would climb to 23% by the end of this year from about 9% last year. The computer, electronics and optical equipment sector, which includes semiconductors, is estimated to have accounted for about 60% of year-on-year GDP growth contribution in the third quarter. As the chip industry's weight grows alongside rising output and exports, swings in the sector carry greater influence over the overall growth rate.
Some forecasters now see growth reaching 4% this year. The Korea Development Institute raised its forecast to 3.2% from 2.5%, while the BOK and the International Monetary Fund projected 3.3% and the Organisation for Economic Co-operation and Development 3.7%. The average forecast among eight major global investment banks compiled by the Korea Center for International Finance stands at 3.5%. The BOK said growth would top 4% this year if fourth-quarter output rises 1.4% from the previous quarter.
Still, the chip-driven expansion is expected to take time to spread across the broader economy. Lee, the BOK official, said the drawback of the semiconductor industry is its relatively weak effect on employment, adding that corporate income gains take time to reach the government and households. Higher tax revenue from corporate taxes on chipmakers' profits will mostly feed into next year's fiscal spending, and performance bonuses are unlikely to be paid out in earnest until the first quarter of next year, he said.
Households' spending capacity has yet to improve markedly. Private consumption fell 0.2% in the third quarter from the previous quarter, the first decline in 15 quarters since the fourth quarter of 2022. Stock trading value dropped as share prices tumbled during the quarter, while a strike in the auto industry and base effects from the end of fuel-price relief payments and home appliance rebate programs also weighed. Services were uneven across sectors, with wholesale and retail, lodging and food services down 0.4% from the prior quarter and finance and insurance down 4.3%.
A gap also emerged between the economy's rising purchasing power and the conditions households actually feel. Real gross domestic income rose 18.8% from a year earlier as higher chip prices and lower prices for imports such as crude oil improved terms of trade. That was the fastest pace in 48 years and nine months, since the fourth quarter of 1977. By contrast, the composite consumer sentiment index stood at 105.4 in October, down 1.2 points from the previous month and reversing direction after just one month, according to a BOK consumer survey released the same day. The figures suggest that while the export boom has improved income conditions for the economy as a whole, the gains have not translated into household sentiment or actual spending.