Korea’s GDP Grows 1.0 Percent in Q3 as Government Spending Adds 0.8 Points and Sentiment Eases
South Korea’s economy grew 1.0 percent in the third quarter from the second, seasonally adjusted, and 3.4 percent from a year earlier, according to the Bank of Korea’s advance estimate. Government spending did most of the lifting. Public consumption and public investment together added 0.8 percentage points of the 1.0 percent rise, on our sum of the Bank’s contribution table. Private consumption slipped 0.2 percent.
A separate survey from the Bank, released the same day, put the composite consumer sentiment index at 105.4 in October. That was 1.2 points lower than in September, the Bank said. The September reading was therefore 106.6, on our calculation.
Where the 1.0 percent came from
Government consumption rose 1.9 percent on the quarter. That is the fastest of the 13 quarters from the third quarter of 2023 to the third quarter of 2026, on our count. It contributed 0.3 points. Government fixed investment added another 0.5 points, a swing from minus 0.5 points in the second quarter. That swing is a rebound rather than a new high: in unadjusted terms, public fixed investment was still 2.7 percent below the same quarter of 2025 on our calculation.
Elsewhere, demand was split. Facilities investment rose 4.1 percent after 0.2 percent and contributed 0.4 points. It was 9.4 percent above a year earlier on our calculation. Construction investment rose 0.7 percent but was 0.7 percent below a year earlier on our calculation. Investment in intellectual property products grew 2.3 percent on the quarter, on our calculation from the Bank’s seasonally adjusted levels. It contributed 0.2 points. Private consumption went the other way. It contributed minus 0.1 points. Its 0.2 percent fall is its only negative reading in the 13 quarters from the third quarter of 2023, on our count.
Contributions to quarterly real GDP growth, percentage points
| Component | Q2 2026 | Q3 2026 |
|---|---|---|
| Private consumption | 0.2 | -0.1 |
| Government consumption | 0.0 | 0.3 |
| Private fixed investment | 0.7 | 0.1 |
| Government fixed investment | -0.5 | 0.5 |
| Changes in inventories | -0.1 | 0.1 |
| Exports of goods and services | 0.6 | 1.1 |
| Imports of goods and services | -0.3 | -1.0 |
Seasonally adjusted, chained 2020 prices, as published by the Bank on 27 October; third quarter figures are the advance estimate. Imports are deducted from GDP, so their contributions are shown as negative. Rows may not add to GDP growth because of rounding and chain linking.
Trade added little on a net basis. Exports of goods and services contributed 1.1 points, but imports took 1.0 point back, leaving net exports at 0.1 points on our calculation. Domestic demand, consumption plus capital formation, supplied 0.9 points on our sum. In the second quarter, net exports had supplied 0.3 points of a 0.6 percent rise on our calculation, so the mix has moved toward spending at home.
Factories led output, services slowed
On the production side, manufacturing grew 2.0 percent on the quarter after 1.4 percent. It stood 7.0 percent above a year earlier on our calculation from the Bank’s unadjusted chained levels. Construction output rose 2.0 percent after falling 1.9 percent, though it remained 1.4 percent lower than a year earlier on our calculation. Services grew 0.2 percent, the slowest quarterly pace since the first quarter of 2025 on our reading of the same table. Agriculture, forestry and fishing rebounded 5.9 percent after a 7.2 percent fall.
Real growth by industry, percent
| Industry | Q2 2026, q/q | Q3 2026, q/q | Q3 2026, y/y |
|---|---|---|---|
| GDP | 0.6 | 1.0 | 3.4 |
| Manufacturing | 1.4 | 2.0 | 7.0 |
| Construction | -1.9 | 2.0 | -1.4 |
| Services | 1.0 | 0.2 | 2.4 |
| Agriculture, forestry and fishing | -7.2 | 5.9 | 1.6 |
Quarter on quarter rates are seasonally adjusted as published by the Bank. Year on year rates other than GDP are our calculation from the Bank’s unadjusted chained 2020 levels for the third quarters of 2025 and 2026.
Real growth by expenditure, percent
| Component | Q2 2026, q/q | Q3 2026, q/q | Q3 2026, y/y |
|---|---|---|---|
| Private consumption | 0.4 | -0.2 | 1.1 |
| Government consumption | 0.1 | 1.9 | 2.6 |
| Facilities investment | 0.2 | 4.1 | 9.4 |
| Construction investment | -0.1 | 0.7 | -0.7 |
| Exports of goods | 1.1 | 2.4 | 8.8 |
| Imports of goods | 1.2 | 2.7 | n/a |
Quarter on quarter rates are seasonally adjusted as published by the Bank. Year on year rates are our calculation from unadjusted chained 2020 levels. On the same basis, exports of services were 7.4 percent higher, exports of goods and services 8.6 percent higher and imports of goods and services 7.0 percent higher.
Exports of goods grew 2.4 percent on the quarter and imports of goods 2.7 percent. Over the year, exports of goods and services ran 8.6 percent higher on our calculation. Imports of goods and services rose 7.0 percent on our calculation.
On the year, growth slowed to 3.4 percent in the third quarter, the Bank’s series shows. It was 3.7 percent in the second quarter and 3.8 percent in the first.
Income far above output
Real gross domestic income rose 3.4 percent on the quarter and 18.8 percent on the year, the release showed. The annual rate has quickened in each quarter of 2026, from 13.2 percent in the first to 15.7 percent in the second, on our count. It is the fastest since the fourth quarter of 1977, when the series stood at 19.0 percent, on our count of the Bank’s quarterly data. GDI adds to output the real trading gain or loss from changes in the terms of trade, and that gain has become large. On our calculation from the Bank’s unadjusted chained levels, real GDI in the third quarter stood 12.8 percent above real GDP. The gap was 9.3 percent in the second quarter, on our calculation. A year earlier GDI sat 1.9 percent below GDP, also on our calculation. The whole difference between the two is the trading gain, on our calculation from the same table.
An issue note published by the Bank on 31 August linked double digit GDI growth at the time to better terms of trade from surging chip export prices. It said Korean chipmakers were raising wages and investment on higher operating profits.
Consumer sentiment eases
The October survey points the same way as the spending figures, on our reading. The composite index fell to 105.4. Private consumption was the one domestic component to subtract from third quarter growth, on our reading of the contribution table. The two are separate measures, and both weakened.
Why it matters: Korean growth is broadening from exports into investment and public spending, on our reading. Manufacturing and equipment investment both run well above last year’s levels on our calculation. Households have not joined in. Private consumption posted its only negative reading in 13 quarters on our count, and sentiment eased in October. That matters for the Bank, which kept its base rate at 3.00 percent on 22 October. In the same statement the Bank put inflation at an estimated 3 percent. It said better income conditions should gradually widen the consumption recovery.
Outlook: As set out after the 22 October rate decision, the Bank expects growth this year and next to run well above its August forecasts of 3.3 percent and 2.9 percent. The Bank’s release calendar puts November’s consumer survey on 24 November and the preliminary third quarter national accounts on 9 December. The November survey will show whether sentiment recovers.
Sources: Bank of Korea, The Edge.
