In the third quarter of this year, Korea's economy grew 1.2%, marking a 1% range growth rate for the first time in six quarters. Private consumption increased to the highest level in about three years, driven by the government's distribution of consumer coupons, which led economic growth. Real gross domestic income (GDI) rose 0.7% from the previous quarter.
According to the "National Income (advance estimate)" that the Bank of Korea released on the 28th, real gross domestic product (GDP) in the third quarter of this year increased 1.2% from the previous quarter. The growth rate expanded to about double the second quarter's 0.6% and is the largest since the first quarter of last year, when it was 1.2%.
Quarterly GDP growth slowed after the surprise 1.2% in the first quarter of last year, posting -0.2% in the second quarter, 0.1% in the third quarter, 0.1% in the fourth quarter, and -0.2% in the first quarter of this year. It was the first time on record that quarterly GDP stayed at 0.1% or lower for four consecutive quarters. However, with 0.6% growth in the second quarter, it moved out of the slump, and the growth trend steepened further in the third quarter.
By institutional sector, domestic demand improved significantly. Private consumption, a pillar of domestic demand, rose 1.3% as both goods (such as passenger cars) and services (such as entertainment and culture, and medical care) increased. It was the largest increase since the third quarter of 2022, when it was 1.3%. Government consumption also rose 1.2%, sustaining the previous quarter's 1.2% expansion. The government consumption growth rate is the largest since the fourth quarter of 2022, when it was 2.3%. Consumption is interpreted to have increased due to consumer coupons and higher government spending.
Construction investment and facility investment, the other pillars of domestic demand, also improved. Construction investment, centered on building and civil engineering, fell 0.1%, extending a decline for six consecutive quarters, but it was the best result since the first quarter of last year (+4.5%). Facility investment broke out of a two-quarter decline and increased 2.4%, led by machinery (including semiconductor manufacturing equipment). It is the largest growth rate since the third quarter of last year, when it was 5.4%.
Exports, which had posted strong growth in the second quarter of this year, saw a slowdown in the growth rate. Third-quarter exports rose 1.5% as semiconductors and automobiles increased. The increase is about one-third of the second quarter's +4.5%. Imports also increased 1.3%, led by machinery and equipment and automobiles, but the increase was much smaller compared with the second quarter's +4.2%.
In terms of contributions to the economic growth rate, domestic demand accounted for 1.1 percentage points (p) and net exports for +0.1 percentage point. By component, private consumption made the largest contribution at 0.6 percentage point, followed by government consumption at 0.2 percentage point, gross fixed capital formation at 0.2 percentage point, and net exports at 0.1 percentage point. The contribution from private consumption expanded to about three times the previous quarter's 0.2 percentage point, and gross fixed capital formation hit a record high for the first time in six quarters. However, net exports were smaller than the previous quarter's 0.3 percentage point.
In the second quarter of this year, real gross domestic income (GDI) increased 0.7% from the previous quarter. The increase was smaller than the previous quarter's 1.3%. Gross domestic income refers to the sum of all income generated within a country. It is calculated by subtracting government subsidies from the total of all wages, profits, and taxes.
Meanwhile, the year-over-year GDP growth rate was 1.7%. The growth rate is about three times the second quarter's 0.6% and is the largest since the second quarter of last year, when it was +2.2%. The year-over-year GDI growth rate also came in at 2.2%, improving from the previous quarter's 1.5%.