Third-quarter GDP surges 1.2%, boosting possibility of raising this year's economic growth projection

The government hinted at the possibility of raising this year's economic growth forecast from the existing 0.9% to the 1% range. This is based on the judgment that "the growth momentum is expanding" as the third-quarter gross domestic product (GDP) growth rate exceeded expectations, recording 1.2%.

The Ministry of Economy and Finance announced this during an economic trends briefing held at the Sejong Government Complex on the 28th, stating, "The third-quarter GDP is definitely much better than our internal projections." Kim Jae-hoon, Head of Economic Policy, said, "While there are uncertainties surrounding the U.S.-China and South Korea-U.S. tariff negotiations in the annual outlook, the possibility of achieving a 1% growth rate has increased compared to the existing projections."

The Bank of Korea announced on the same day that the third-quarter real GDP growth rate (quarter-on-quarter, preliminary figure) was 1.2%, the highest in six quarters since the first quarter of last year. The government had significantly lowered this year's growth forecast from the previous 2.2% to 0.9% through the July economic policy direction.

◇ "The New Government's First Complete Economic Report Card"

The Ministry of Economy and Finance defined the third-quarter performance as "the new government's first complete economic report card." It explained that after remaining at near 0% growth for four consecutive quarters from the second quarter of last year to the first quarter of this year -- a first in history -- the economy successfully rebounded starting in the second quarter (0.7%) and the growth momentum further expanded in the third quarter.

The ministry analyzed, "After showing near 0% growth for four consecutive quarters from the second quarter of last year to the first quarter of this year for the first time in history, the economy reversed from sluggishness in the second quarter due to psychological recovery following the launch of the new government." Notably, while the first quarter of this year saw negative growth (-0.2%) due to the aftermath of martial law, the economy revived as consumer sentiment quickly recovered after the new government took office in June.

Overall, the government diagnosed that private sector-led growth was driven by domestic demand, which led the growth amid resilient exports, supported by the government's role as a catalyst through fiscal policy.

◇ Private Consumption Records Largest Increase in Three Years

By sector, private consumption increased by 1.3%, marking the largest increase in three years since the third quarter of 2022. The Ministry of Economy and Finance explained, "Improved sentiment, supplementary budgets for consumption coupons, and stock market activation played a role."

Equipment investment also increased by 2.4%, turning positive led by machinery amid favorable semiconductor industry conditions. The ministry assessed, "This is a positive factor that will continuously enhance growth potential in the future."

Although construction investment decreased by 0.1%, the ministry viewed that "the decline has significantly narrowed due to improvements in leading indicators such as construction orders from last year, showing that it has almost escaped the previous sluggishness."

Exports increased by 1.5%, showing a better-than-expected trend despite the impact of U.S. tariffs, driven by strong semiconductor performance and automobiles in non-U.S. markets. Imports also rose by 1.3%, led by machinery, equipment, and automobiles. The ministry analyzed, "The increase in imports testifies to the recovery in domestic demand."

Government Hints at 1% Growth Forecast After Strong Q3 GDP