Consumption led and the stock market pushed … 3rd quarter 1.2% 'surprise growth'

BOK announces real economic growth rate … avoids this year's '0% range' growth concern; private consumption growth highest in 3 years

Both goods and services consumption increased

'9 trillion won consumption coupons' boosted domestic demand

Investment and exports recovered amid semiconductor boom

Gu Yun-cheol "A complete report card for the new government"

MOEF expects annual growth rate of 1% or more

Expected to affect monetary and fiscal policy

House price outlook index at highest in 4 years

Expectations remain despite regulations

This year's third-quarter gross domestic product (GDP) growth rate was 1.2%, higher than the market consensus (1.1%). Private consumption growth (1.3%) reached its highest level in three years due to a semiconductor super boom, the effect of government consumption coupons, and a stock market boom. Construction investment, which had been sluggish, also showed signs of recovery, leading to assessments that the economy has entered a full-fledged recovery phase.

◇ Consumption coupons, semiconductors, and stock market effects

The Bank of Korea announced on the 28th that the preliminary real economic growth rate for the third quarter was 1.2%. After starting the year with a -0.2% contraction in the first quarter, growth rebounded to 0.7% in the second quarter and widened in the third quarter. A quarterly growth rate of 1.2% is the highest in a year and a half since the first quarter of last year (1.2%).

Private consumption drove growth. Private consumption in the third quarter rose 1.3%, nearly three times the 0.5% in the second quarter. Consumption of goods such as passenger cars and communication devices and services such as restaurants and medical care all increased. Private consumption's contribution to overall growth (1.2%) amounted to 0.6 percentage points, half of the growth.

Lee Dong-won, Director of the Bank of Korea's Economic Statistics Division II, explained, "With improved consumer sentiment due to asset effects such as rises in stock and house prices, the combined effects of consumption coupon payments, expanded electric vehicle subsidies, government policies, and the launch of new smartphone and electric vehicle models worked together."

The consumption stimulus effect from the first round of consumption coupons worth 9 trillion won, distributed by the government at the end of July, was concentrated in the third quarter. The second round of consumption coupons, which began to be used from late September, is expected to affect fourth-quarter growth. A rise in stock prices also had a positive impact on growth as production in finance and insurance increased by 2.3%. Park Chang-hyun of the Bank of Korea's National Income General Team said, "As stock-related trading increased and fund subscription amounts rose, finance and insurance contributed to growth."

The semiconductor boom affected facility investment and export increases. Facility investment in the third quarter rose 2.4%, centered on semiconductor manufacturing equipment, returning to growth from -2.1% in the second quarter. Exports also increased 1.5% as semiconductors and automobiles rose, though the growth rate slowed compared to 4.2% in the second quarter. Government consumption increased 1.2%. Construction investment fell 0.1%. The decline that began in the second quarter of last year has continued for a year and three months, but the decrease narrowed due to the start of work on ports, power plants, and other projects.

◇ Annual growth of 1.0% within sight

The announced third-quarter growth rate (1.2%) slightly exceeded the Bank of Korea's August economic outlook projection of 1.1% for the third quarter. At that time, the Bank of Korea projected 0.2% growth in the fourth quarter, resulting in an annual growth rate of 0.9%. Gu Yun-cheol, Deputy Prime Minister and Minister of Economy and Finance, said that day, "Third-quarter GDP is the new government's complete economic report card," and evaluated, "Consumption is recovering, investment is increasing, and exports are improving."

The Bank of Korea and the Ministry of Economy and Finance both see a high possibility that the annual growth rate will be 1.0% or higher. Director Lee said, "If there is -0.1~0.3% growth in the fourth quarter, the annual growth rate can reach 1.0%."

Growth forecasts are expected to influence future Bank of Korea monetary policy and government fiscal policy. According to the Bank of Korea's "October Consumer Sentiment Survey" released that day, the house price outlook index was 122, up 10 points from 112 the previous month. It is the highest level in four years since October 2021. It shows that housing market expectations have not been dampened despite strong government real estate measures.

Kang Jin-gyu / Kim Ik-hwan reporters josep@hankyung.com