With domestic demand, including private consumption, supporting growth, the Korean economy expanded by 1.3% in the third quarter, marking the highest growth rate in about three years and nine months. This reflected a pickup in construction investment and continued strong exports. If the economy does not retreat sharply in the fourth quarter, the annual growth rate is expected to exceed 1%.

The Bank of Korea announced on the 3rd that the provisional quarter-on-quarter growth rate of real gross domestic product (GDP) for the third quarter was 1.3%. This is the highest quarterly growth since the fourth quarter of 2021 (1.6%). It was 0.1 percentage point higher than the advance estimate (1.2%) released on October 28.

Reflecting data for the final month of the quarter (September) that the BOK could not use when compiling the advance estimate, increases over the advance estimate were seen in construction investment (0.7 percentage point), investment in intellectual property products (1 percentage point), equipment investment (0.2 percentage point), government consumption (0.1 percentage point), and exports·imports (0.6 percentage point).

In particular, construction investment, which had been -0.1% in the advance estimate and thus weighed on growth, rose by 0.7 percentage point, resulting in a 0.6% increase in the provisional third quarter figures. Construction investment escaped negative growth for the first time in six quarters. Equipment investment was revised from 2.4%→2.6%, government consumption from 1.2%→1.3%, and exports and imports to 1.5%→2.1% and 1.3%→1.9%, respectively.

The Korean economy had shown a persistently weak trend starting with negative growth in the second quarter of last year (-0.2%). As consumption contracted toward the end of last year due to illegal martial law, the first quarter of this year also recorded negative growth (-0.2%). However, growth rebounded to 0.7% in the second quarter, and with a return to 1% growth in the third quarter, the economy showed signs of improvement.

Domestic demand led third quarter growth. The distribution of livelihood recovery consumption coupons had a significant effect. In terms of contributions to growth, domestic demand contributed 1.2 percentage points and net exports (exports minus imports) 0.1 percentage point, indicating a larger impact from domestic demand than exports. The contribution of domestic demand was 0.8 percentage point higher than in the previous quarter (0.4 percentage point).

By sector, private consumption rose 1.3% as both goods such as passenger cars and communication devices and services such as restaurants and health care increased. Government consumption also grew 1.3%. Private consumption was the highest since the third quarter of 2022 (1.3%), and government consumption was the highest since the fourth quarter of 2022 (2.3%).

Equipment investment also increased 2.6%, and construction investment rose 0.6%. Both equipment and construction investment turned to positive growth from negative in the previous quarter. Exports grew 2.1% on gains in semiconductors and automobiles, while imports increased 2% mainly in machinery and equipment.

With third quarter growth at 1.3% and construction investment, which had dragged down growth, now recovering, there is a view that the annual growth rate will exceed 1% this year, as projected by the BOK. Having projected growth in the zero percent range through August, the BOK raised its outlook to 1% in its economic forecast on the 27th of last month.

Kim Hwa-yong, head of the National Accounts Department at the BOK, said that if fourth quarter growth is between -0.4% and -0.1%, annual growth of 1% is achievable, and if it is zero or higher, 1.1% is also possible. The BOK projects fourth quarter growth of 0.2%.