[Edaily Reporter Lee Jeong-yoon ] Buoyed by the semiconductor boom, the South Korean economy posted 1% growth in the third quarter of this year, exceeding expectations. With semiconductors driving roughly half of the overall growth and capital investment and government spending adding to the momentum, the annual growth rate is now also likely to surpass initial forecasts.

On the other hand, private consumption declined due to factors such as a decrease in stock trading and strikes in the automotive industry. However, it is projected that consumption will gradually recover starting in the fourth quarter as these temporary factors subside and the income-boosting effects of the semiconductor boom trickle down to households.

◇Semiconductors Account for Half of Growth…Government Spending Also Provides Support

According to the “Preliminary Report on Real Gross Domestic Product (GDP) for the Third Quarter of 2026” released by the Bank of Korea on the 27th, real GDP in the third quarter increased by 1.0% compared to the previous quarter. This figure exceeded the Bank of Korea’s August forecast (0.3%) by 0.7 percentage points and was also higher than the forecast (0.8%) from a survey of 11 economic experts conducted by Edaily. Year-over-year, GDP grew by 3.4%.

Lee Dong-won, Director of the Bank of Korea’s Economic Statistics Division 2, said at a briefing that day, “It is estimated that semiconductors contributed to about half of third-quarter economic growth,” adding, “This was driven by a simultaneous increase in exports and capital investment, led by the semiconductor sector.”

Exports rose 2.3% from the previous quarter, driven primarily by semiconductors, machinery, and electrical equipment. Capital investment also increased by 4.1%, led by machinery for semiconductor manufacturing. The year-over-year growth rate for capital investment was 9.4%, the highest since the second quarter of 2021. Manufacturing output also rose by 2.0%.

Government spending also contributed to growth. Government consumption rose 1.9% compared to the previous quarter, and the contribution of the entire government sector to growth reached 0.8 percentage points. Director Lee explained, “Fiscal spending, which had been partially delayed during the first half of the year due to uncertainties such as the war in the Middle East, was carried out in the third quarter,” adding, “Expenditures related to large-scale construction projects and the procurement of graphics processing units (GPUs) had an impact.”

By expenditure category, domestic demand contributed 0.9 percentage points to growth, significantly outpacing net exports (0.1 percentage points). While fixed investment contributed 0.4 percentage points and government consumption 0.3 percentage points, private consumption reduced the growth rate by 0.1 percentage points.

◇Decline in Private Consumption Attributed to One-Time Factors…Improvement Expected Starting in the Fourth Quarter

Private consumption fell 0.2% from the previous quarter, marking the lowest growth rate since the first quarter of 2022 (-1.0%). Not only did consumption of goods such as passenger cars and home appliances decline, but consumption of financial services also decreased. The growth rate of the service sector also slowed from 1.0% in the previous quarter to 0.2%.

The Bank of Korea analyzed that a decline in stock trading and strikes in the automotive industry were the main factors dragging down consumption. It explained that the stock market correction in July led to a drop in trading volume, resulting in a decrease in consumption of financial services—such as brokerage commissions—while a full-scale strike in the automotive industry delayed passenger car deliveries, causing a contraction in durable goods consumption.

Director Lee stated, “These two special factors are estimated to have lowered the private consumption growth rate by approximately 0.6 percentage points,” adding, “Had these factors not been present, private consumption would have increased by 0.4% rather than recording an actual decline of 0.2%.”

However, the outlook is that consumption conditions will gradually improve starting in the fourth quarter. This is because passenger car sales rebounded significantly in October, and the contraction in financial services consumption caused by the decline in stock trading is likely to ease.

The positive impact of the semiconductor boom on household income is also expected to take full effect. This is because cash dividends from semiconductor companies will begin in the fourth quarter, and performance-based bonuses are expected to increase in the first quarter of next year, which could boost consumers’ spending power. The government’s expansion of transfer payments next year and stable import prices were also cited as factors that will support the recovery in consumption.

However, Director Lee noted, “Given that structural constraints—such as an aging population and high household debt burdens—remain, it is difficult to assess the recovery in consumption as sufficiently strong.”

◇Surprise Third-Quarter Growth Raises Possibility of Upward Revision to Annual Growth Rate

With the third-quarter growth rate coming in higher than expected, the likelihood that this year’s annual growth rate will exceed the initial forecast has increased. Director Lee explained, “The fact that the third-quarter growth rate was 0.7 percentage points higher than the August forecast is a factor that will lift the annual growth rate by about 0.35 percentage points.”

He added that even if the economy does not grow quarter-over-quarter in the fourth quarter, this year’s annual growth rate could still reach 3.6%. He noted that if the fourth-quarter growth rate is 1.4% or higher, annual growth of 4% would be mathematically possible.

Meanwhile, real gross domestic income (GDI) also rose significantly due to improved terms of trade resulting from rising semiconductor export prices and falling import prices. Real GDI in the third quarter increased by 3.4% quarter-on-quarter and 18.8% year-on-year. The year-on-year growth rate was the highest in 48 years and 9 months, since the fourth quarter of 1977 (19.0%).