Real gross domestic income (GDI) in the third quarter (July-September) grew 18.8% from a year earlier, the biggest increase in 48 years and 9 months, since the fourth quarter of 1977 (19.0%). Economic growth that quarter was 1.0% from the previous quarter, beating expectations, but private consumption fell 0.2%.
The Bank of Korea tallied the figures in its third-quarter “advance estimate of real gross domestic product (GDP)” released on the 27th. Growth rose on higher semiconductor export volumes, and as chip prices also climbed, income swelled far more for the same quantity sold. Real GDI is an indicator of the purchasing power of income that people can actually spend.
Semiconductors were the main driver of this growth and income surge. The BOK estimated that the semiconductor sector accounted for half of third-quarter growth. The semiconductor and computer sector's share of cumulative exports for January-September reaches 47%.
The possibility that annual per capita gross national income (GNI) will top $40,000 for the first time has also grown. Deputy Prime Minister and Finance and Economy Minister Lee Hyung-il wrote on X (formerly Twitter) that “per capita gross national income is expected to exceed $40,000, 12 years after entering the $30,000 range in 2014.” The ministry projected that if the January-September average exchange rate of 1,463 won per dollar continues through year-end, annual per capita GNI could reach $43,500. Some also see it topping $44,000 if the exchange rate stays in the 1,300 won range through year-end.
However, there are also warnings that growth could cool sharply if demand for memory chips weakens amid concerns about overinvestment in artificial intelligence (AI). BOK Governor Shin Hyun-song also stressed at a recent press briefing, “We need to look at the impact on the Korean economy of concerns over whether AI investment, including in semiconductors, will continue.”
That the heat of growth has not spread to consumption as a whole is cited as a concern. Private consumption turned negative for the first time in 3 years and 9 months, since the fourth quarter of 2022 (-1.0%). Even as income-related indicators have surged across the board, most people have not felt it and have cut spending, leaving the domestic demand recovery sluggish. Some also say the limits of a growth structure that leans on semiconductors have been exposed.
Lee Dong-won, head of the BOK's Economic Statistics Department 2, explained, “Private consumption fell in the third quarter this year because a decline in stock trading volume following the KOSPI correction and strikes at automakers delayed vehicle deliveries.”
The Ministry of Finance and Economy and the BOK expect private consumption to gradually revive from the fourth quarter. They judge that if Samsung Electronics and SK hynix pay performance bonuses following large dividends, spending power will recover. On the other hand, concerns have also been raised that the dividends and bonuses released by chip companies may deepen polarization rather than expand domestic demand.
Calls are also mounting to actively foster new industries such as aerospace and bio, and service industries with large job-creation effects, in order to move away from reliance on semiconductors. Cho Jun-mo, a professor of economics at Sungkyunkwan University, said, “For the Korean economy to grow evenly, the sectors that form the waist of industry, such as materials, parts and equipment, must revive,” adding, “Additional support measures are needed so that mid-sized and small companies can grow evenly.”
President Lee Jae-myung said at a Cabinet meeting that day, “It is time to make every effort to improve domestic demand so that the wave of growth can become a giant wave that changes the lives of all citizens.” He asked, “Relevant ministries, offices and agencies to focus their measures for the rest of this year on revitalizing regional economies and local commercial districts, where recovery is relatively slow.”