South Korea’s economy accelerates in Q3, beating expectations
South Korea posted robust third-quarter growth, with a year-on-year GDP expansion of 1.7% that outpaced economists’ expectations. The advance estimates from the Bank of Korea (BoK) show a noticeable acceleration from Q2, when growth was 0.6% year on year. The quarterly figure also topped forecasts, underscoring a rebound driven by a surge in exports and a resilient manufacturing sector.
Key drivers: exports and manufacturing
The BoK data indicate that the external sector played a crucial role in the rebound. Exports and the manufacturing industries rose by 6% and 3.3% respectively, year on year, contributing to the overall expansion. The gains in goods and services exports reflect increased shipments of semiconductors and motor vehicles, highlighting the global demand that has supported Korea’s trade-reliant economy.
“The acceleration is consistent with a broader improvement in domestic demand and a continued recovery in consumption, aided by favourable export conditions,” analysts said. The export-led strength is particularly notable given the broader global uncertainties weighing on some Asia-Pacific economies.
Construction remains a drag
Not all sectors contributed positively. The construction sector contracted 8.1% year on year, making it the biggest drag on overall growth for the quarter. This weakness underscores persistent headwinds in a sector sensitive to interest rate movements and public-spending cycles, even as other parts of the economy show resilience.
Quarter-on-quarter performance and implications
On a seasonally adjusted, quarter-on-quarter basis, GDP rose 1.2%, beating Reuters’ poll estimate of 0.9%. The stronger quarterly pace reinforces the view that the economy is expanding at a steadier clip heading into the final stretch of the year, supported by domestic demand and a favorable export environment.
Policy context and outlook
The BoK has signaled that domestic demand should continue its recovery, led by consumption, with exports likely to stay strong for a period thanks to the robust semiconductor sector. However, policymakers warned that the impact of U.S. tariffs on exports could gradually broaden, suggesting ongoing vigilance in the face of global trade frictions.
As South Korea navigates its trade relationship with the United States, the exchange of commitments under the broader U.S.–Korea trade framework remains a talking point. President Lee Jae Myung has acknowledged that negotiations over certain key details are ongoing, including a potential $350 billion investment pledge in the U.S. market. Market watchers will be watching for how any new tariff dynamics could influence Korea’s export outlook in the coming quarters.
Forecasts and what to watch next year
For the full year, the BoK has penciled in a growth rate of 0.9% for 2025 and 1.6% for 2026. The mix of export momentum, domestic consumption, and sector-specific dynamics will shape whether the 2025 forecast remains on track. Analysts will closely monitor consumption data, investment patterns, and external demand signals, especially from semiconductor cycles and auto production, which remain central to Korea’s growth narrative.
Bottom line
The Q3 performance confirms that South Korea’s economy is transitioning from a post-pandemic rebound to a more sustainable growth path, anchored by export strength and a recovering domestic market. While construction weakness weighs on overall activity, the broad-based upturn in manufacturing and global demand provides a constructive backdrop for policy and investment decisions in the quarters ahead.
