Economic growth accelerates in the third quarter of 2025

GDP growth exceeds market expectations: Korea’s GDP expanded 1.2% on a seasonally adjusted quarter-on-quarter basis in Q3, following 0.7% growth in the previous quarter. The Q3 result was the joint strongest in almost four years and overshot market expectations. In annual terms, economic output grew 1.7% in Q3, following a 0.6% expansion in the previous quarter.

Private spending and fixed investment drive the improvement: Compared with the previous quarter’s data, figures in Q3 improved for private consumption (+1.3% in seasonally adjusted quarter-on-quarter terms vs +0.5% in Q2) and fixed investment (+0.8% vs -1.0% in Q2). In contrast, readings worsened for exports of goods and services (+1.5% vs +4.5% in Q2) and imports of goods and services (+1.3% vs +4.2% in Q2). Finally, the variation in government spending was the same as in the prior quarter (+1.2% in Q3 and Q2). While exports propelled GDP growth earlier in the year, domestic demand took the reins in the third quarter, bolstering economic momentum. Private consumption accelerated on the back of a normalized political environment and greater government support, including cash handouts, incentives for EV purchases and healthcare-related spending. Moreover, fixed investment growth rose thanks to stronger momentum in IT investment. On the flip side, exports rose at a softer pace due to U.S. tariffs, but continued to expand amid sustained semiconductor and vessel exports.

GDP growth to ease in Q4: Our Consensus is for sequential economic growth to cool in Q4. The support provided by the government will likely fade, denting private consumption, while housing market regulations may further weigh on household budgets. Moreover, U.S. tariffs and softer private spending growth in the States will likely drag on exports. Looking further ahead to 2026, GDP growth is set to roughly double from 2025 rates, due to stronger domestic demand outweighing the negative effects of decelerating exports.

Panelist insight: Commenting on the Outlook, EIU analysts stated: “We expect the withdrawal effect of front-loaded export orders to become more pronounced in the last quarter of 2025, leading to a contraction in exports. However, South Korea’s economy will continue to expand on the back of resilient domestic demand.”

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