Equipment investment surges 9.4% in Q3, but private consumption rises just 1.1%

October exports jump 93.7%; electrical equipment, nonferrous metals also benefit from AI spending

High oil prices and interest rates constrain household spending; petroleum prices up 14.9% in October

Processed food shelves at a hypermarket in Seoul on Monday [Yonhap]
Processed food shelves at a hypermarket in Seoul on Monday [Yonhap]

South Korea's economy expanded 3.4% in the third quarter compared with a year earlier, driven by semiconductor exports and investment in AI infrastructure, while private consumption grew just 1.1% over the same period.

As strong exports spread beyond semiconductors to electrical equipment and nonferrous metals on the back of AI data center investment, households found their spending power squeezed by high oil prices and the cumulative effect of rising interest rates.

The Korea Development Institute said in its November economic outlook, released Monday, that the economy "continues to grow solidly, centered on sectors related to AI infrastructure investment," but added that "the pace at which the benefits of economic improvement are spreading to households broadly remains slow."

AI investment lifts exports of electrical equipment, nonferrous metals

Real GDP in the third quarter rose 3.4% from a year earlier and 1.0% from the previous quarter, according to the advance estimate. Real exports climbed 8.6% year on year and equipment investment surged 9.4%, both serving as key growth drivers. The equipment investment index for September rose 10.1% from a year earlier despite fewer working days. Investment in semiconductor manufacturing machinery jumped 68.9%, while spending on general industrial machinery and electrical and electronic equipment rose 15.2% and 9.9%, respectively.

Customs-cleared exports in October surged 93.7% from a year earlier, with the daily average — adjusted for working days — up 76.1%. Driven largely by sharp price increases, the daily average export value of semiconductors and computers soared 226.8% and 442.3%, respectively. Exports tied to AI infrastructure investment also rose, with electrical equipment up 58.2%, nonferrous metals up 25.2% and steel products up 11.2%. Real goods exports in the third quarter, stripped of price effects, grew 8.8% from a year earlier.

Private consumption growth slows from 2.4% to 1.1% as high oil prices weigh

Private consumption in the third quarter grew 1.1% from a year earlier, slowing from 2.4% in the second quarter. On a seasonally adjusted basis, it fell 0.2% from the previous quarter. Retail sales in September rose 3.6% from the prior month as automotive production disruptions eased, though they remained 0.9% below June levels.

KDI said income gains from the semiconductor boom have yet to flow clearly through to households more broadly, and that elevated prices and the cumulative rise in market interest rates have constrained household spending capacity. The institute also noted that some demand was pulled forward ahead of the expiration of an individual consumption tax cut at the end of the second quarter, which weighed on third-quarter consumption growth.

Consumer prices rose 2.8% in October from a year earlier, easing slightly from the 2.9% gain recorded in September. Agricultural product prices fell 7.5%, but petroleum prices jumped 14.9%. The rate of increase in processed food prices accelerated from 2.1% to 2.9%, while core inflation held steady at 2.8%, unchanged from the previous month.

KDI also flagged tensions in the Middle East and growing policy uncertainty among major economies as external risk factors.


fact0514@heraldcorp.com