With real gross domestic product (GDP) in the third quarter showing a stronger-than-expected rebound, the growth rate reached the 1% range for the first time in a year and six months. Thanks to the government's distribution of consumption coupons and increased expenditure, domestic demand posted the biggest rebound in three years. The likelihood of achieving 1% growth for the full year has also risen. The Bank of Korea (BOK) said 1% growth is possible as long as the fourth-quarter growth rate does not fall below -0.1%.
According to the National Income (advance) released by the Bank of Korea on the 28th, real gross domestic product (GDP) in the third quarter of this year increased 1.2% from the previous quarter. The GDP growth rate had slowed, failing to exceed 0.1% for four straight quarters from the second quarter of last year (-0.2%) to the first quarter of this year (-0.2%), before turning to a recovery in the second quarter (0.7%).
◇ Domestic demand contribution at 1.1 percentage points on consumption coupon effect… exports also held up
The Bank of Korea (BOK) noted that if the third-quarter growth rate is extended to the second decimal place, it is 1.17%. This slightly exceeded the 1.1% forecast presented in August. Director General Lee Dong-won of the BOK's Economic Statistics Department 2 said, "In the third quarter, domestic demand led growth, centered on private consumption," adding, "The first round of consumption coupons, distributed starting on July 21, were used across various sectors such as restaurants, hospitals and hair salons, contributing to higher consumption."
Lee also said, "Exports continued to show a favorable trend," adding, "Despite the U.S. tariff impact, semiconductor exports held up, and while car exports to the United States decreased, exports to the European Union (EU) increased." Lee added, "Petroleum and refining also benefited as the global oversupply somewhat eased."
In fact, private consumption in the third quarter increased 1.3% as both goods (such as passenger cars) and services (such as culture and entertainment, and medical care) consumption rose. This is the largest increase since the third quarter of 2022 (1.3%). Government consumption also grew 1.2%, the biggest growth since the fourth quarter of 2022 (2.3%). Exports continued their upward trend, supporting growth. Third-quarter exports increased 1.5%, led by semiconductors and automobiles, marking a second straight quarter of growth after the previous quarter (4.5%).
This trend was also reflected in growth contributions by component. Of the third-quarter growth rate, 1.1 percentage points (p) came from domestic demand. This is the highest level in three years since the third quarter of 2022 (2.0%p). By sector, the private sector contributed 0.8%p and the government 0.4%p. These were the highest contributions since the first quarter of last year (1.3%p) and the third quarter (0.4%p), respectively.
However, the contribution of net exports (exports minus imports) was 0.1%. While exports contributed 0.7%p to growth, imports also increased, reducing the net export contribution compared with the previous quarter (0.3%p).
◇ Likelihood of 1% growth this year rises… "Watching the effect of the second consumption coupons"
With the third-quarter growth rate beating expectations, the market's attention is turning to the possibility of achieving 1% growth for the year. Overseas investment banks (IBs) have already revised up their forecasts for Korea's economic growth.
According to the International Finance Center, the average forecast for Korea's economic growth this year by eight overseas IBs last month was 1%. Goldman Sachs and UBS were the highest at 1.2% each, while Citi, JPMorgan and HSBC were the lowest at 0.9%.
The Bank of Korea (BOK) estimated that if the fourth-quarter growth rate falls between -0.1% and 0.3%, this year's GDP growth rate will be 1% (0.95%–1.04% to the second decimal place). In other words, even with a slight contraction, 1% growth can be achieved without difficulty.
Lee said, "What matters most is how the fourth-quarter growth rate turns out," adding, "If it grows 0.2% quarter over quarter as the Research Department projected in August, achieving 1% will be possible."
The Bank of Korea (BOK) is focusing on the domestic demand-boosting effect of the second round of consumption coupons. Lee said, "The second consumption coupons were distributed starting on Sept. 22, and credit card spending has clearly increased since October," adding, "Considering that the second consumption coupons have not yet been fully used up, the effect is likely to show in the fourth quarter rather than the third."
However, Lee said, "Since 9.2 trillion won was distributed in the first round and 4.5 trillion won in the second round, the effect (on boosting domestic demand) will be smaller than in the first round," adding, "It remains to be seen whether consumption will continue after the coupons are used up, but we expect the (consumption growth) trend to continue."
The Bank of Korea (BOK) plans to release its revised economic outlook at the meeting to decide the direction of monetary policy of the Monetary Policy Committee to be held on the 27th of next month. In the revised outlook in August, the BOK presented a growth forecast of 0.9% for this year. In the November outlook, it is expected to decide whether to raise the growth forecast while watching the effect of the second extra budget.