Exports, manufacturing drive South Korea's third-quarter GDP growth — fastest in over a year

South Korea's economy expanded 1.7% year-on-year in the third quarter, surpassing analyst estimates and marking its fastest growth in over a year, primarily fueled by strong exports, particularly in semiconductors and motor vehicles, and a robust manufacturing sector. While the Bank of Korea anticipates continued recovery in domestic demand and favorable exports, it highlights the potential for increasing impacts from U.S. tariffs, a key point of contention in ongoing trade negotiations.

Analysis

South Korea's economy expanded by 1.7% year-on-year in the third quarter, marking its fastest growth in over a year and surpassing Reuters' polled estimate of 1.5%. Quarter-on-quarter GDP growth also exceeded expectations, rising 1.2% against a 0.9% forecast. This robust performance follows a 0.6% growth rate in the second quarter, indicating accelerating economic momentum.

The primary drivers of this growth were strong exports, which increased by 6% year-on-year, and a robust manufacturing sector, expanding 3.3%. Notably, increased shipments of semiconductors and motor vehicles fueled this export surge, representing the fastest growth since the third quarter of 2024. Conversely, the construction sector acted as a significant drag, contracting 8.1% year-on-year.

The Bank of Korea (BOK) noted continued economic improvement, supported by recovering consumption and favorable exports, projecting sustained domestic demand and strong semiconductor-led exports. However, the BOK explicitly warned that the impacts of U.S. tariffs on exports are likely to expand gradually. This caution aligns with ongoing, deadlocked trade negotiations between South Korea and the Trump administration regarding a $350 billion investment pledge in exchange for reduced tariffs.

Key Decisions for Investors

• Investors should closely monitor developments in U.S.-South Korea trade negotiations, as escalating tariff impacts could significantly dampen export-driven growth despite current economic strength.
• Consider exposure to South Korean export-oriented sectors, particularly semiconductors and automotive, with a careful assessment of their sensitivity to potential tariff increases and supply chain disruptions.
• Evaluate companies with strong domestic demand exposure, as the Bank of Korea anticipates continued recovery in consumption, potentially offering a more stable growth avenue amidst trade uncertainties.