South Korea's third-quarter GDP clocks fastest growth in over a year as exports, manufacturing rise

South Korea's economy expanded at its fastest pace in more than a year, with its third-quarter gross domestic product growth topping analysts' estimates on Tuesday.

According to advance estimates from Bank of Korea, GDP rose 1.7%, year on year, compared to the 1.5% rise expected by economists polled by Reuters. The economy had grown by 0.6% in the second quarter.

Data from the Bank of Korea revealed that growth was mostly supported by exports and the manufacturing sector that expanded 6% and 3.3%, respectively, year on year.

The construction sector was the biggest drag on the economy, contracting 8.1% in the reported quarter compared to a year earlier.

The growth in exports of goods and services, which came on the back of increased semiconductor and motor vehicle shipments, was the fastest since the third quarter of 2024.

On a quarter-on-quarter basis, the country's GDP expanded 1.2%, also beating Reuters poll estimates of a 0.9% growth.

Experts that spoke to CNBC highlighted that although export figures were stronger on a year-on-year basis, compared to the second quarter, growth actually declined.

HSBC's Korea economist Jin Choi told CNBC that the the annual rate was boosted by low base effects from last year. On a quarter-on-quarter basis, export growth slowed to 1.5% from 4.5% in the second quarter.

"For Korea's exports, we think there were relatively limited signs of frontloading, while global AI demand will likely continue to buttress Korea's semiconductor exports," Choi said.

Homin Lee, senior macro strategist from Lombard Odier, said that the sequential fall was evidence that payback from tariff-related frontloading has already taken place to a degree.

Lee said while there may be "residual" frontloading in non-tech exports facing tariff uncertainties, the main drivers for better growth in the third quarter were consumption and investment.

These areas were boosted by the resolution of the post-martial law constitutional crisis, consumption voucher program, and broadening global AI capex boom, he added.

HSBC's Choi said that going forward, continued private consumption recovery, a bottoming out of the construction sector, and expansionary fiscal policy, rather than exports, will be the main drivers for Korea's growth recovery.

South Korea's GDP data comes as the country's negotiators continue to wrangle over details of a trade deal with the Trump administration. In an interview with Bloomberg last Friday, South Korea's President Lee Jae Myung said that the two country's were deadlocked on key details over Seoul's $350 billion investment pledge.

"The U.S. will of course try to maximize its interests, but it mustn't be to the extent that causes catastrophic consequences for South Korea," Lee said in the interview.

In July, South Korea reached a trade deal with Trump that featured blanket tariffs on the country's exports to U.S. at 15% — down from the 25% Trump announced earlier. In return, Seoul had pledged to invest $350 billion in the U.S.

Lee is set to meet Trump on the sidelines of the Asia-Pacific Economic Cooperation summit being held in Gyeongju, South Korea, later this week.

The Bank of Korea in its statement last Thursday said that the economy has continued to improve, supported by a sustained recovery in consumption and favorable exports growth.

"Going forward, domestic demand is expected to continue its recovery, led by consumption, and exports are likely to remain favourable for some time owing to the strong semiconductor sector, but the impacts of U.S. tariffs on exports are likely to expand gradually," the BOK added.

The central bank has forecast full-year growth for 2025 at 0.9%, and 1.6% for 2026