Closer to '1% Annual Growth'... "Private Consumption and Exports Key in Q4" (Comprehensive)

Bank of Korea Releases Provisional Q3 2025 National Income Data
Q3 GDP Grows 1.3%, Up 0.1 Percentage Point from Preliminary Estimate
Construction Investment Turns Positive; Government Spending and Exports Rise
Annual 1.0% Growth Achievable Even w

In the third quarter of this year, South Korea's economic growth rate reached 1.3%. This figure is an upward revision from the preliminary estimate of 1.2% announced in October. The turnaround in construction investment, particularly in semiconductor manufacturing plants, along with increased government consumption and strong export performance, led to the highest growth rate since the fourth quarter of 2021. With a 1.0% growth rate for the year now considered likely, the key factors will be export performance in December and the extent of improvement in private consumption.

At the press briefing on the "Preliminary National Income for the Third Quarter of 2025," held on the 3rd at the Bank of Korea in Jung-gu, Seoul, (from left) Kim Sungja, Head of the Income Distribution Team, Lee Hyunyoung, Head of the Expenditure National Income Team, Kim Hwayong, Director of the National Income Department, Park Changhyun, Head of the National Income General Team, and Kim Seonim, Deputy Head of the National Income General Team, are responding. Bank of Korea

GDP grows 1.3% in Q3... Construction investment rebounds after six quarters

On December 3, the Bank of Korea announced that South Korea's real gross domestic product (GDP) growth rate (preliminary) for the third quarter increased by 1.3% compared to the previous quarter. To two decimal places, the figure is 1.33%, marking the highest level in three years and nine months (15 quarters) since the fourth quarter of 2021 (1.6%). The Korean economy experienced negative growth (-0.2%) in the second quarter of last year, followed by modest 0.1% growth in both the third and fourth quarters, and another negative growth rate (-0.2%) in the first quarter of this year. However, after rebounding to 0.7% in the second quarter, growth climbed to 1.3% in the third quarter.

Growth in the third quarter was driven by increases in both domestic demand-including consumption and construction investment-and exports. By expenditure category, private consumption rose 1.3% quarter-on-quarter, as spending on goods such as passenger cars and communication devices, as well as services like dining and medical care, all increased. Government consumption also grew by 1.3%, mainly due to higher spending on goods and health insurance benefits.

Construction investment increased by 0.6%, led by civil engineering projects. This marks a rebound after six quarters and is a significant rise compared to the preliminary estimate in October (-0.1%). Kim Hwayong, Director of the National Income Department at the Bank of Korea, explained, "Despite some construction stoppages due to safety accidents at certain companies during the third quarter, non-residential buildings, especially semiconductor manufacturing plants, performed well." Facility investment rose by 2.6%, mainly in machinery such as semiconductor manufacturing equipment. Corporate investments in automobiles were strong, and investment in general industrial machinery also expanded.

Exports increased by 2.1%, driven by semiconductors and automobiles, while imports rose by 2.0%, mainly in machinery, equipment, and automobiles. Compared to the preliminary estimates, government consumption (up 0.1 percentage points), construction investment (up 0.7 percentage points), facility investment (up 0.2 percentage points), intellectual property product investment (up 1.0 percentage point), exports (up 0.6 percentage points), and imports (up 0.7 percentage points) were all revised upward.

Domestic demand contribution rises by 1.2 percentage points... "Expansion centered on consumption and investment"

The contribution of domestic demand to growth expanded significantly in the third quarter. By expenditure category, domestic demand-including consumption and investment-contributed 1.2 percentage points to growth, while net exports (exports minus imports) contributed 0.1 percentage points. Compared to the second quarter, domestic demand increased by 0.8 percentage points, while net exports fell by 0.2 percentage points, highlighting a clear recovery in domestic demand. By component, consumption contributed 0.9 percentage points, while construction and facility investment also turned positive, contributing 0.1 and 0.2 percentage points, respectively. Exports contributed 0.9 percentage points, and imports 0.8 percentage points.

Kim Hwayong stated, "While net exports continued to make a positive contribution, domestic demand expanded significantly from 0.4 percentage points to 1.2 percentage points, mainly due to consumption and investment. The positive contribution from private consumption increased substantially, government consumption remained at the previous quarter's level, and both facility and construction investment shifted from negative to positive contributions." Net exports maintained a positive contribution, as the export contribution continued to exceed that of imports, which is a subtractive factor.

By industry, manufacturing grew by 1.5% quarter-on-quarter, led by transportation equipment, computers, and electronic and optical devices. The construction sector increased by 0.7%, mainly due to civil engineering. The service sector grew by 1.4%, with gains in wholesale and retail, accommodation and food services, transportation, and finance and insurance.

In the third quarter, real gross national income (GNI) increased by 0.8% compared to the previous quarter. However, due to worsening terms of trade and a decline in net factor income from abroad, real GNI growth lagged behind GDP growth. Nevertheless, for the cumulative period through the third quarter, real GNI growth remains higher than GDP growth. Real GNI reflects the actual purchasing power earned by Koreans both domestically and abroad. An increase in real GNI indicates that the economic capacity of the population has grown. Kim Hwayong explained, "The difference between real GDP and real GNI is due to net factor income from abroad. Since this component decreased compared to the previous quarter, real GNI fell quarter-on-quarter. However, cumulatively through the third quarter, real GDP grew by 0.8% and real GNI by 1.8%. Therefore, while there may be quarterly differences, overall, income growth is outpacing GDP growth."

The GDP deflator, which reflects the overall price level in the domestic economy, rose by 2.7% year-on-year. The gross national saving rate for the third quarter was 34.4%, down 1.2 percentage points from the previous quarter. The household net saving rate increased by 0.1 percentage points to 8.9%, continuing its upward trend. This is because the growth rate of gross disposable income outpaced private consumption, driven by higher employee compensation and transfer income. The gross domestic investment rate fell by 0.2 percentage points to 28.6%.

If Q4 grows -0.4% to -0.1%, annual growth of 1.0% will be achieved

Achieving a 1.0% growth rate for the year now appears likely. According to the Bank of Korea's economic outlook in November, a fourth-quarter growth rate between -0.4% and -0.1% would arithmetically ensure annual growth of 1.0%. If growth is above -0.0%, even a 1.1% annual growth rate is possible. The Bank of Korea had projected 0.2% growth for the fourth quarter in its November outlook. Even considering the base effect from the higher preliminary growth rate in the third quarter, achieving 1.0% annual growth appears well within reach.

Kim Hwayong noted, "There were temporary adjustments in manufacturing and investment due to the base effect from the holiday season, but recent private consumption and export performance have been strong. We expect this trend to continue into the fourth quarter." However, due to the base effect from strong growth in the second and third quarters, the quarter-on-quarter growth rate for the fourth quarter may be lower than the 0.2% projected in the economic outlook.

The key factors for the fourth quarter will be export performance and the degree of improvement in private consumption. Kim Hwayong stated, "Attention should be paid to how exports perform compared to the strong levels seen in December last year, and to how much of the 1 trillion won in consumption coupons distributed in the fourth quarter will be used by year-end and affect private consumption."

This content was produced with the assistance of AI translation services.