South Korea posts faster-than-expected third-quarter GDP growth
South Korea’s economy expanded at the fastest pace in more than a year in the third quarter, with advance data from the Bank of Korea showing a 1.7% year-on-year rise. That outpaced the 1.5% growth economists expected and beat the prior quarter’s 0.6% expansion, underscoring a robust recovery driven by exports and a resilient manufacturing sector.
Key drivers: exports and manufacturing
The Bank of Korea attributed the quarterly strength to a solid performance in exports and improvements in manufacturing activity. Exports of goods and services grew by 6% year-on-year, while the manufacturing sector expanded by 3.3%. The gains come as global demand for semiconductors and motor vehicles remained firm, supporting Korea’s trade-heavy growth model.
Looking at the components, trade-sensitive segments benefited from a favorable external environment, with semiconductor shipments and automotive exports contributing notably to the quarterly expansion. This aligns with broader expectations that Korea’s export-led growth would continue into the latter part of the year, supported by high global demand and ongoing supply chain normalization.
Construction weakness drags overall momentum
Not all sectors fared equally. The construction sector was the primary drag on growth, contracting 8.1% from a year earlier. This sizable drop weighed on the quarter’s overall performance and illustrates how domestic investment dynamics can offset gains in other areas. Analysts note that while construction has softened, improvements in consumption and export momentum may help cushion the economy from higher interest rates and global headwinds.
Quarter-on-quarter and forward-looking signals
On a quarterly basis, GDP rose 1.2%, above Reuters’ median estimate of 0.9%. The stronger quarter hints at ongoing momentum, even as policymakers monitor external risks, including tariff developments and trade frictions. The Bank of Korea has signaled that domestic demand should continue to recover, led by household consumption, while exports are expected to stay favorable, buoyed by the semiconductors sector.
Policy context and outlook
The central bank maintained a cautiously optimistic view, noting continued improvements in consumption and export growth. While the BoK expects full-year growth for 2025 at 0.9% and a stronger 1.6% in 2026, officials also warned that the effect of U.S. tariffs on exports could gradually become more pronounced. The current stance reflects a balancing act between encouraging domestic demand and mitigating external headwinds.
Geopolitical backdrop: trade deal with the United States
South Korea’s export resilience comes as negotiators continue to work through trade deal discussions with the United States. In recent remarks, President Lee Jae Myung indicated that the talks remained in a delicate phase, with key details of Seoul’s $350 billion investment pledge under consideration. Lee stressed that while the U.S. will seek its interests, outcomes should avoid catastrophic consequences for South Korea. The two sides are expected to meet again at the Asia-Pacific Economic Cooperation summit in Gyeongju, highlighting how diplomacy can influence the trajectory of economic policy and commercial ties.
Takeaway for investors and consumers
For investors, the 3Q outturn reinforces the narrative of a gradual, export-led recovery supported by strong semiconductor demand and a resilient manufacturing base. Consumers may also benefit from improving domestic demand signals, even as external risks remain. The BoK’s forecast of a modest but positive trajectory for 2025–2026 suggests policymakers will remain vigilant, ready to adjust policy as external conditions evolve.
