Strong Q3 Growth Beats Expectations
South Korea’s economy expanded at its fastest pace in more than a year in the third quarter, with advance GDP data from the Bank of Korea showing a 1.7% year-on-year increase. This outpaced economists’ expectations, who had penciled in a 1.5% rise. On a quarter-on-quarter basis, GDP grew by 1.2%, also above the Reuters poll’s 0.9% forecast. The release suggests sustained momentum behind a rebound in consumer demand and a robust export sector.
Exports and Manufacturing Drive the Upswing
The improvements were led by a strong performance in exports and the manufacturing sector. Exports grew by 6% year-on-year, with shipments of semiconductors and motor vehicles helping to lift overall demand. The growth in goods and services exports marked the fastest pace since the third quarter of 2024, underscoring Korea’s export-oriented economy’s resilience amid global demand fluctuations.
Manufacturing activity also contributed significantly, expanding 3.3% year-on-year. The sector’s rebound appears to reflect a combination of favorable global demand, improved supply chains, and ongoing technological investments that keep Korea’s electronics and auto industries competitive on the world stage.
Construction Slows the Pace
Not all components of the economy fared equally. The construction sector was the main drag in the reported quarter, contracting 8.1% year-on-year. The weakness in construction weighed on overall growth and highlights how volatile the investment side of the economy can be, especially as infrastructure and property markets adjust to shifting policy and demand conditions.
Outlook and Policy Context
Bank of Korea officials stressed that domestic demand remained a bright spot as consumption continued to recover. The central bank’s assessment suggests that consumption will likely stay a key driver of growth alongside a favorable export outlook, particularly given the ongoing strength in the semiconductor sector.
Looking ahead, the Bank of Korea forecasts 2025 growth at 0.9% and 1.6% for 2026, signaling cautious optimism about a longer-term recovery. However, policymakers also noted that the impact of U.S. tariffs on exports could expand gradually, introducing a degree of downside risk to the export outlook.
Geopolitical and Trade Context
South Korea’s GDP data arrives amid ongoing trade discussions with the United States. President Lee Jae Myung has indicated that talks over a proposed trade framework—connected with Seoul’s pledge to invest up to $350 billion in the U.S.—remain sensitive, with both sides working to resolve key details ahead of and during the Asia-Pacific Economic Cooperation summit in Gyeongju. While trade negotiations continue, South Korea’s economy appears to be navigating a path of growth supported by domestic resilience and a robust tech export cycle.
Key Takeaways
- Q3 GDP up 1.7% y/y and 1.2% q/q, beating estimates.
- Exports and manufacturing drive growth; semiconductors and autos are major contributors.
- Construction remains a drag, down 8.1% y/y.
- Moderate but positive outlook for 2025–2026; tariff dynamics watchfully monitored.
