Consumption in Korea

Korea - Consumption

GDP growth loses momentum in the third quarter

GDP growth slowed to 0.3% on a seasonally adjusted quarter-on-quarter basis in the third quarter, from 0.7% in the second quarter. Q3's reading marked the worst result since Q3 2021. The result matched market expectations.

Household spending increased 1.9% in the third quarter, which was below the second quarter's 2.9% expansion. Consumer spending weakened due to decades-high inflation, which more than offset the boost coming from the relaxation of Covid-19 restrictions. Public consumption growth softened to 0.2% in Q3 (Q2: +0.7% s.a. qoq). Meanwhile, fixed investment growth hit an over two-year high of 2.3% in the third quarter (Q2: +0.3% s.a. qoq).

On the external front, exports of goods and services bounced back, growing 1.0% in Q3 (Q2: -3.1% s.a. qoq). In addition, imports of goods and services rebounded, growing 5.8% in Q3 (Q2: -1.0% s.a. qoq).

On an annual basis, economic growth accelerated to 3.1% in Q3, compared to the previous period's 2.9% increase.

Looking forward to Q4, our panelists expect GDP to contract slightly in quarter-on-quarter terms as elevated inflation and rising interest rates dampen demand at home and from abroad.

Nomura’s Jeong Woo Park commented on the GDP outlook:

“We expect the consumption-led recovery to lose steam with deteriorating household income prospects and rising credit stress. Following a reopening from Q2, pent-up demand for durable goods and services (hotels & restaurants, travel, entertainment) appear to have peaked in Q3. Moreover, in addition to falling GDI, falling house prices and rising debt service burdens should hit household income, which would lead to cutbacks in spending, in our view.”

ING’s Min Joo Kang concurred:

“The latest data show the reopening boost starting to fade, and we expect this trend to accelerate in the current quarter. We think consumer spending will decline in the near term due to debt deleveraging and the debt service burden […]. Exports are also likely to turn weak again, due to the economic slowdown in major trade partners such as the US, EU, and China and sluggish semiconductor exports. Thus, we maintain our view that the economy will experience a moderate recession early next year.”

FocusEconomics panelists see GDP growth at 1.8% in 2023, which is down 0.1 percentage points from the previous month’s forecast. For 2024, GDP is seen expanding 2.4%.