Third-quarter GDP flash estimate more than triples Bank of Korea forecast

Semiconductors account for nearly 30% of growth contribution

Private consumption falls as chip-heavy risks come into focus

Semiconductor price gains may slow next year

Experts call for broader policy support beyond chips

Export and import cargo is stacked at Sinseondae Pier in Busan Port. [Yonhap]
Export and import cargo is stacked at Sinseondae Pier in Busan Port. [Yonhap]

South Korea's real gross domestic product posted a surprise expansion in the third quarter, far exceeding the Bank of Korea's forecast, but concerns over the economy's heavy dependence on semiconductors persist. As doubts grow in global markets over the profitability of the AI industry, economists are calling for broader investment beyond the chip sector.

Real GDP grew 1 percent quarter-on-quarter in the third quarter, the Bank of Korea said Tuesday in its flash estimate. That figure was more than three times the central bank's August forecast of 0.3 percent.

Semiconductors again played an outsized role. Imports rose 2.3 percent from the previous quarter, driven by semiconductors and machinery and electrical equipment, while facility investment climbed 4.1 percent, led by semiconductor manufacturing equipment. Manufacturing — the economy's core sector — grew 2 percent in the third quarter, following 1.4 percent growth the quarter before, buoyed by increased output in computers, electronic and optical devices, and machinery and equipment.

Lee Dong-won, director general of the Bank of Korea's economic statistics department, said at a briefing Tuesday morning that while it was difficult to isolate the semiconductor contribution in the flash estimate, computers, electronics and optical devices — including semiconductors — accounted for about 60 percent of year-on-year growth. "Semiconductors alone are estimated to account for roughly half of that," he said.

Private consumption, however, fell 0.2 percent — its first decline since the fourth quarter of 2022, more than four years ago. The drop reflected a pullback in financial services amid a stock market correction, as well as delayed vehicle deliveries caused by a full-scale strike in the automotive industry.

Intellectual property investment rose 2.3 percent, construction investment gained 0.7 percent, and government consumption increased 1.9 percent. Even so, market observers say the results fall short of easing concerns about the economy's lopsided reliance on semiconductors.

Analysts warn that if growing skepticism in global markets over AI investment materializes, South Korea — with its heavy dependence on chips — could face a severe blow. The skepticism centers on uncertainty over whether the massive capital flowing into AI will generate commensurate returns.

The Bank of Korea has already outlined a "pessimistic scenario" tied to an AI investment slowdown in written responses submitted to the National Assembly for a national audit. Under that scenario, the central bank estimated semiconductor export volumes could fall by $50 billion to $100 billion.

The Bank of Korea also flagged price risk — one of the key determinants of profitability — on Tuesday. Lee said HBM production gains next year should push volume growth higher than this year, but added that semiconductor prices, while still rising, would do so at a slower pace. "We expect the rate of increase to decelerate compared to this year," he said.

A slowdown in semiconductor price gains could weaken the economic payoff from export growth. Data the Bank of Korea released Sunday on current account balances among major IMF member countries showed South Korea's current account surplus in the second quarter of this year reached $116.63 billion, the second largest among 36 major economies after China — a result driven in no small part by rising semiconductor prices.

Consumer sentiment is also softening in response to these concerns. The Bank of Korea's consumer survey for October, released Tuesday, showed the employment outlook consumer sentiment index fell two points to 86, weighed down by worries over a potential semiconductor slowdown and the impact of AI advances on jobs. The wage outlook index also dropped two points to 122. The Bank of Korea said concerns about whether the semiconductor slowdown will persist are feeding into falling share prices and a dimmer view of economic conditions.

Business circles say it is urgent to spread the benefits of the semiconductor boom more broadly across the economy. The Korea Development Institute has warned that if the country fails to overcome its chip-heavy concentration, it could face negative growth after 2030.

Shin Se-don, an emeritus professor of economics at Sookmyung Women's University, said the semiconductor boom has not translated into meaningful job creation, suggesting the trickle-down effect is smaller than expected. "The government needs to first assess the state of industries outside semiconductors and direct policy funding to sectors that are falling behind," he said.

Ahn Dong-hyun, a professor of economics at Seoul National University, said South Korea has lived off semiconductors for nearly half a century but that the industry's peak may be approaching. "We need to tackle structural issues, such as deregulating the services sector," he said.


hyuk@heraldcorp.com
kimstar@heraldcorp.com