The Korean economy grew 1% quarter on quarter in the third quarter, more than triple the Bank of Korea’s forecast (0.3%). Government spending and chip-driven facility investment lifted growth, but private consumption turned to a decline for the first time in about four years (15 quarters). Concern is growing that the economy as a whole is leaning on the semiconductor sector’s “solo” growth.
According to “Third-Quarter Real Gross Domestic Product (GDP, Preliminary)” released by the Bank of Korea on the 27th, real GDP in the third quarter rose 1% from the previous quarter. That is more than triple the 0.3% forecast the BOK issued in August. Compared with a year earlier, the economy grew 3.4%.
In its August forecast, the BOK had expected third-quarter growth to cool somewhat because of a base effect from the previously high growth. But actual growth was in fact larger than in the second quarter (0.6%).
Among expenditure items, everything except private consumption increased. Exports rose 2.3%, led by semiconductors and machinery and electrical equipment, while imports rose 2.4% on increases in crude oil and semiconductor manufacturing machinery. Facility investment expanded 4.1%, mainly in machinery including semiconductor manufacturing machinery.
Intellectual property product investment rose 2.3% on increases in research and development and software. Construction investment rose 0.7%, mainly in civil engineering, turning positive for the first time in one quarter. Government consumption rose 1.9% as spending on goods and services and health insurance benefits both increased.
Private consumption fell 0.2% as consumption of goods such as passenger cars and home appliances and of services such as finance and food declined at the same time. A quarter-on-quarter decline in private consumption is the first in more than four years, since the fourth quarter of 2022 (-0.1%). Compared with a year earlier, it rose 1.1%.
Of the 1% growth contribution, domestic demand accounted for 0.9 percentage point and net exports 0.1 percentage point. As imports rose along with exports, the contribution of net exports shrank from those of the first quarter (1.1 percentage points) and the second quarter (0.3 percentage point). By sector, the government’s contribution was 0.8 percentage point, four times the private sector’s (0.2 percentage point). In the second quarter, it was 1.1 percentage points for the private sector and -0.5 percentage point for the government.
By economic activity, manufacturing rose 2% from the previous quarter on strength in computers, electronic and optical equipment, and machinery and equipment. Construction rose 2% on growth in civil engineering, and electricity, gas and water utilities rose 3.7%, mainly electricity. Agriculture, forestry and fisheries rose 5.9%, centered on crop cultivation and fishing. In contrast, services grew only 0.2% even though business services, information and communications, and transportation increased, while finance and insurance (-4.3%) and wholesale and retail trade and accommodation and food service (-0.4%) went backward.
Third-quarter real gross domestic income (GDI) rose 3.4% from the previous quarter, more than triple the real GDP growth rate (1%). The year-on-year increase was 18.8%, a bigger gain following the first quarter (13.2%) and the second quarter (15.7%). Real GDI is real GDP plus real trading gains and losses from changes in the terms of trade, and is an indicator showing the real purchasing power people actually feel.