South Korea's economy grew 1.0% in the third quarter, far exceeding the Bank of Korea's forecast, as strong semiconductor exports and facility investment combined with higher government spending. Private consumption, however, posted its weakest performance in four and a half years, signaling that growth driven by exports and investment has yet to spread to domestic demand.
Real gross domestic product rose 1.0% from the previous quarter, according to advance estimates for the third quarter of 2026 released by the central bank on the 27th. The figure was 0.7 percentage points above the 0.3% projection the bank issued in August. Growth from a year earlier came in at 3.4%, also topping the 2.6% forecast made at the time.
With third-quarter growth well ahead of expectations, the central bank is now more likely to raise its 3.3% full-year growth forecast.
The rebound was led by exports and facility investment, centered on semiconductors. Exports rose 2.3% from the previous quarter, driven by chips as well as machinery and electrical equipment. Facility investment climbed 4.1% as spending on machinery, including semiconductor manufacturing equipment, increased. Manufacturing grew 2.0%, led by computers, electronic and optical devices and machinery and equipment, lifting overall growth by 0.6 percentage points.
Private consumption, by contrast, fell 0.2% from the previous quarter, the weakest reading since the first quarter of 2022, when it dropped 1.0%. Spending declined not only on goods such as passenger cars and home appliances but also on services including finance and dining. Growth in the service sector slowed to 0.2% from 1.0% in the previous quarter.
Government spending partly offset the weakness in private consumption. Government consumption rose 1.9% as outlays on goods and health insurance benefits increased. As a result, the public sector's contribution to growth swung to 0.8 percentage points from minus 0.5 percentage points in the previous quarter. The private sector's contribution fell to 0.2 percentage points from 1.1 percentage points, with private consumption subtracting 0.1 percentage point.
The consumption trend echoes concerns raised in a central bank report on the outlook for a recovery in private consumption, released on the 22nd. The bank found that despite the semiconductor boom, the pickup in spending has been concentrated in certain product categories and income groups, and that its momentum weakened in the third quarter.
Greater stock market volatility is also seen as a variable for consumer spending. Falling share prices erode the value of financial assets such as equities, which can squeeze household spending capacity. Households may also cut back in response to shrinking assets or delay purchases in anticipation of economic uncertainty.
Market analysts say the growth rebound should be assessed alongside domestic demand. In a survey of 22 market experts on the central bank's rate decision, conducted by Seoul Economic Daily from the 15th to the 19th, Yoon Yeo-sam, a research fellow at Meritz Securities, said third-quarter growth could reach the 1% range but stressed the need to examine the impact on domestic demand and vulnerable groups.
Meanwhile, real gross domestic income, a measure of the economy's purchasing power, rose 3.4% from the previous quarter and surged 18.8% from a year earlier. The year-on-year gain was the largest since the fourth quarter of 1977.