South Korea's economy grows 1 per cent in third quarter on AI chip demand

South Korea's economy grew 1.0 per cent in the July to September quarter from the previous three months, beating forecasts as global demand for AI chips lifted exports and investment. CNA reported the advance Bank of Korea estimates on Tuesday.

Growth was up from 0.6 per cent in the second quarter. It was also above the 0.7 per cent median forecast in a Reuters poll of economists and far ahead of the central bank's own August forecast of 0.3 per cent, CNA reported. Compared with a year earlier, GDP rose 3.4 per cent. That was down from 3.7 per cent in the previous quarter but higher than the 3.0 per cent economists expected.

"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 rose 2.3 per cent on demand for semiconductors, machinery and electric equipment, and imports grew 2.4 per cent. Facilities investment jumped 4.1 per cent, led by semiconductor manufacturing equipment.

Households were spending less. Private consumption fell 0.2 per cent, its first decline in nearly four years, as a stock market slump hit financial services and strikes at major automakers cut car purchases. The Japan Times said the drop in consumption pointed to an increasingly uneven expansion that may complicate the path for further interest rate rises. A separate central bank survey showed consumer sentiment slipped in October as the outlook for household income and spending weakened, CNA reported.

The Bank of Korea left interest rates unchanged last week after raising them in July and September. It kept a hawkish stance, upgrading its growth forecasts. In August it had projected 3.3 per cent growth for this year. The economy is now expected to grow 3.7 per cent if fourth-quarter GDP holds at the third-quarter level.

Lee expects exports and investment to stay strong in the fourth quarter. He said chip production volume would expand further next year, with prices still rising but more slowly. He expects consumption to recover gradually as chip companies pay dividends to shareholders in the fourth quarter and bonuses to staff in the first quarter of 2027.

Park Sang-hyun, an economist at iM Securities, was less optimistic. "There could be short-term boosts, but it is difficult to expect strong momentum given labour market conditions and restrictive interest rates," he told CNA.

South Korea's exports passed US$800 billion in the first nine months of the year, already above last year's full-year record. According to CNA, they are on track to top US$1 trillion this year. That would make South Korea the fourth country to reach the mark, after the United States, China and Germany.

Sources: CNA, South Korea Q3 GDP beats forecasts as AI chip boom boosts exports, investments; The Japan Times, South Korea growth tops forecast as chip boom masks weak demand.