South Korea Q3 GDP beats forecasts as AI chip boom fuels exports
South Korea's economy grew 1.0% quarter-on-quarter in Q3, beating forecasts, driven by AI chip exports and facility investments. Domestic demand remained weak, with private consumption falling for the first time in nearly four years.
South Korea's economy grew faster than expected in the third quarter as a global artificial-intelligence chip boom boosted exports and investments, advance central bank estimates showed on Tuesday, though domestic demand remained weak.
Gross domestic product expanded 1.0 per cent in the July-September quarter from the preceding three months, when it grew 0.6 per cent. It was stronger than a median 0.7 per cent increase tipped in a Reuters poll of economists and higher than the Bank of Korea's forecast of 0.3 per cent in August. The economy is now seen growing 3.7 per cent this year, if GDP in the fourth quarter stays at the same level as the third quarter.
"It is estimated that about half of economic growth is being driven by semiconductors," Lee Dong-won, director general of the Bank of Korea's economic statistics department, told a briefing. Exports and investments are expected to remain robust in the fourth quarter, Lee said, adding that chip production volume will expand further next year while prices will continue to grow but at a slower pace.
Amid the global boom in AI investment, South Korea's exports topped US$800 billion in January to September, higher than last year's full-year record, and are on track to exceed US$1 trillion this year, which will make South Korea the fourth country to reach the milestone, after the US, China and Germany. In the third quarter, exports rose 2.3 per cent on demand for semiconductors, machinery and electric equipment, while facilities investment jumped 4.1 per cent, led by machinery such as semiconductor manufacturing equipment.
Private consumption fell 0.2 per cent as financial services declined on a stock market slump and car purchases fell due to strikes at major automakers. "Exports and investments are leading growth, but the downside is that private consumption remains weak compared with the overall growth momentum," said Park Sang-hyun, an economist at iM Securities. Private consumption, which fell for the first time in nearly four years in the third quarter, will likely recover gradually, as dividend payouts by chip firms to their shareholders in the fourth quarter and bonus payments to employees in the first quarter of 2027 boost household income, Lee said.
On a year-on-year basis, GDP grew 3.4 per cent, after rising 3.7 per cent in the quarter before, also stronger than economists' expectations for a 3.0 per cent increase. The Bank of Korea kept interest rates unchanged last week, after back-to-back hikes in July and September, but maintained a hawkish stance by upgrading its economic growth forecasts and remaining upbeat about the country's export momentum.