South Korea GDP Grows 1 Percent as Chip Exports Lift Kospi 3.1 Percent

South Korea's economy grew 1.0 percent in the third quarter from the quarter before, the Bank of Korea said on Tuesday, beating forecasts as the global boom in artificial intelligence kept demand for Korean chips high. The result topped a median forecast of 0.7 percent in a Reuters poll and the central bank's own August projection of 0.3 percent. Growth picked up from 0.6 percent in the second quarter.

It was the third quarter in a row that growth beat the Bank of Korea forecast, the Seoul Economic Daily reported. First quarter growth of 1.8 percent and second quarter growth of 0.6 percent also came in above the bank's projections. Compared with a year earlier, output rose 3.4 percent in the third quarter, stronger than the 3.0 percent economists expected.

Chips carry the growth

Exports rose 2.3 percent in the quarter on demand for semiconductors, machinery and electrical equipment, the Bank of Korea said. Facilities investment jumped 4.1 percent, led by machinery such as semiconductor manufacturing equipment. A central bank official estimated that semiconductors account for about half of the economy's growth.

South Korea's exports topped 800 billion dollars in the first nine months of the year, already above last year's full year record. The country is on track to pass 1 trillion dollars in exports this year, which would make it only the fourth country to reach that mark, after the United States, China and Germany.

Households hold back

Private consumption fell 0.2 percent, the first decline in nearly four years. That gap is the weak point in the data: chip factories and exporters are expanding, while households are spending less. The Bank of Korea kept interest rates unchanged last week, after increases in July and September, and stayed upbeat about export momentum while keeping a hawkish tone on policy.

Seoul and Tokyo close higher

Korean shares rose hard on the news. The Kospi closed up 3.1 percent at 5,638.34, the Associated Press reported, with SK Hynix up 5.2 percent and Samsung Electronics up 4.2 percent. Earlier in the session the index had risen more than 4 percent, and the Korea Exchange triggered a sidecar, a brief halt on program trading used when futures move too fast.

In Tokyo, the Nikkei 225 closed up 1.7 percent at 63,268.37. SoftBank Group rose 5 percent and chip testing equipment maker Advantest jumped 9.6 percent. Hong Kong and mainland China lagged: the Hang Seng fell 0.7 percent and the Shanghai Composite slipped 0.4 percent.

Why it matters

South Korea sits in the middle of the AI supply chain. Its memory chips go into the data centers that US technology companies are building at record speed. When Korean exports and investment rise this fast, it is a direct read on how strong that spending still is, one day before Alphabet and Microsoft report earnings in the United States.

What happens next

The Bank of Korea releases updated forecasts next month, and economists expect an upward revision to its August projection of 3.3 percent growth for the year. If fourth quarter output simply holds at third quarter levels, annual growth would come in at about 3.7 percent, a central bank official said. The next test is whether household spending recovers, or whether chip led growth keeps running ahead of the rest of the economy.