Korean economy beats expectations with 1.2% Q3 growth

The South Korean economy grew 1.2 percent in the third quarter of this year, driven by a rebound in private consumption and signs of resilience in domestic demand, indicating that Asia’s fourth-largest economy is gradually regaining momentum after a sluggish first half.

According to data released by the Bank of Korea on Tuesday, the country’s real gross domestic product, a key measure of economic output adjusted for inflation, expanded 1.2 percent in the July-September period from the previous quarter. The figure marked the fastest quarterly pace of growth in a year and a half.

Following a 0.2 percent contraction in the second quarter of last year, the local economy hovered around zero for three consecutive quarters from the third quarter of last year to the first quarter of this year.

After rebounding with a 0.7 percent expansion in the second quarter of this year, it saw a further pickup in the third, signaling that the economy is now on a modest recovery path.

The latest figure slightly exceeded the BOK’s earlier forecast of 1.1 percent growth. Analysts say the stronger-than-expected performance underscores the resilience of domestic spending despite continued external headwinds such as slowing exports and global interest rate uncertainty.

Domestic demand, particularly private consumption, emerged as the main engine of growth. Household spending increased 1.3 percent on-quarter, the sharpest rise since the third quarter of 2022, contributing 0.8 percentage point to the overall GDP expansion.

“By growth contribution, domestic demand, including private consumption, drove growth in the third quarter,” said Lee Dong-won, a senior official in charge of economic statistics at the BOK, during a press briefing.

According to the central bank, the rebound was fueled by improved consumer sentiment, a series of targeted fiscal measures, and new product launches that stimulated discretionary spending.

“Private consumption growth comes on the back of government stimulus programs, adjustments in electric vehicle subsidies, the release of new smartphone models, and a rise in medical spending at general hospitals following the return of trainee doctors,” Lee explained.

Government expenditure added 0.4 percentage point to growth, supported by budget spending on welfare and public administration, while net exports contributed 0.1 percentage point as exports of semiconductors and automobiles remained steady.

With the third-quarter performance exceeding expectations, the BOK now projects that the nation's annual growth could surpass its earlier estimate of 0.9 percent, potentially crossing the symbolic 1 percent threshold.

Typically, fourth-quarter growth tends to contribute less to annual GDP due to fewer working days and seasonal factors. However, this year’s fourth-quarter performance is expected to be a key determinant in achieving the annual growth target of 1 percent.

“If fourth-quarter growth falls between minus 0.1 percent and 0.3 percent quarter-on-quarter, the economy would still achieve 1 percent yearly growth,” Lee said, adding that the projection reflects a “narrow but clear recovery trajectory.”

In August, the central bank had expected GDP to grow 0.2 percent in the fourth quarter, but even a slightly weaker outcome would not derail the country from achieving a full-year expansion above the 1 percent mark.

The government also expressed confidence that the country is on track to achieve around 1 percent annual growth.

Finance Minister Koo Yun-cheol told reporters Monday that the 1.2 percent expansion is the result of a "rebound in consumption and investment, along with the government’s role through two rounds of supplementary budgets.”

At a separate briefing, Kim Jae-hoon, director of the Economic Policy Bureau at the Finance Ministry, said the third-quarter result is meaningful as it reflects a shift in the economic trajectory from stagnation to recovery.

“The difference is significant because it represents a transition from 0.3 percent growth in the first half to mid-1 percent growth in the second half,” he said.