The Bank of Korea announced on the 23rd that Q2 real GDP growth reached 0.6% quarter-on-quarter and 3.7% year-on-year, exceeding market expectations. The results surpassed a forecast aggregated by Yonhap Infomax from 13 macroeconomic experts, which projected 0.37% QoQ and 3.43% YoY growth. The strong performance was driven by robust exports and a surge in semiconductor prices, with real Gross Domestic Income (GDI) rising 3.6% QoQ and 15.6% YoY — the highest annual increase since Q1 1988. The economy sustained momentum despite Middle East conflict-related supply shocks, supported by government fiscal measures including a supplementary budget.
Bank of Korea Reports Q2 GDP and GDI Growth Figures
The Bank of Korea released Q2 preliminary data showing real GDP expanded 0.6% quarter-on-quarter and 3.7% year-on-year. Real GDI, which measures the purchasing power of domestically produced final goods, increased 3.6% QoQ and 15.6% YoY. The YoY GDI growth rate marked the highest level in 38 years, since Q1 1988 when it reached 16.4%. GDI adjusts real GDP for changes in purchasing power caused by shifts in relative prices of traded goods. The gap between GDP and GDI widened significantly as semiconductor prices — a major export product — surged during the quarter.
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Expenditure Components Show Mixed Performance Across Sectors
Private consumption rose 0.4% QoQ and 2.5% YoY, with increases in both goods and services. Government consumption grew 0.2% QoQ and 2.2% YoY, driven by health insurance benefit expenditures. Construction investment declined 0.2% QoQ and 1.3% YoY as civil engineering projects decreased. Facility investment increased 0.2% QoQ and 6.3% YoY, led by machinery purchases centered on semiconductor manufacturing equipment. Intellectual property investment rose 3.3% QoQ and 4.9% YoY, driven by research and development and software spending. Exports grew 1.4% QoQ and 9.0% YoY, while imports increased 0.8% QoQ and 6.3% YoY. Domestic demand and net exports each contributed 0.3 percentage points to the QoQ GDP growth rate.
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Manufacturing and Services Drive Economic Activity Growth
By economic activity, agriculture, forestry, and fisheries contracted 7.1% QoQ and 2.4% YoY. Manufacturing expanded 1.2% QoQ and 6.5% YoY, driven by growth in computers, electronics and optical equipment, and machinery and equipment. Electricity, gas, and water supply decreased 1.3% QoQ and 0.5% YoY, led by water and raw material recycling. Construction shrank 1.9% QoQ and 3.8% YoY. The services sector grew 1.1% QoQ and 3.5% YoY.
Q2 Results Exceed Market Forecasts and Q1 Performance
Market participants closely monitored the Q2 figures following the Q1 economic growth rate that recorded a surprise result in April. Bank of Korea Governor Shin Hyun-song stated at a Monetary Policy Committee press conference on the 16th that "all components of GDP are showing considerable strength" and that the central bank would "watch the Q2 national income statistics very carefully." The Bank of Korea indicated in its monthly economic assessment that "the Middle East supply shock was largely cushioned by government policies including a supplementary budget, and exports also showed a favorable trend, so the growth rate is expected to exceed the initial forecast (0.2% QoQ)." Q1 real GDP growth was 1.8% QoQ and 3.8% YoY. Q1 real GDI growth was 8.7% QoQ and 13.2% YoY.
FAQ
What did the Bank of Korea announce on the 23rd regarding Q2 GDP growth?
The Bank of Korea announced that Q2 real GDP growth reached 0.6% quarter-on-quarter and 3.7% year-on-year, exceeding market expectations of 0.37% QoQ and 3.43% YoY as forecasted by 13 macroeconomic experts surveyed by Yonhap Infomax.
Why did South Korea's Q2 GDI growth rate reach a 38-year high?
Q2 real GDI increased 15.6% year-on-year, the highest annual rate since Q1 1988, due to a surge in semiconductor prices. GDI measures purchasing power and adjusts for changes in relative prices of traded goods, so rising export prices for semiconductors significantly widened the gap between GDP and GDI.
How did manufacturing and construction sectors perform in Q2?
Manufacturing grew 1.2% quarter-on-quarter and 6.5% year-on-year, driven by computers, electronics, and machinery. Construction contracted 1.9% QoQ and 3.8% YoY during the same period.
