AI chip boom tripled South Korea’s economic growth in third quarter

South Korea’s economy grew faster than expected in the third quarter. However, analysts warned that its heavy reliance on the chip industry leaves the country vulnerable to a slowdown in global AI spending.

South Korea’s economy grew more than three times faster than expected in the third quarter, fuelled by strong demand for semiconductors, according to central bank data released on Tuesday.

GDP rose by 1.0% in the July-to-September period compared with the previous quarter, preliminary figures from the Bank of Korea (BOK) showed.

The figure surpassed the central bank’s August forecast of 0.3% growth.

The reading was boosted by a 2.3% rise in exports, “led by semiconductors, machinery and electrical equipment”, the BOK said.

Investment in facilities rose by 4.1%, largely driven by spending on machinery used in semiconductor production.

The data validates the “BOK’s upbeat assessment…that booming demand for chips is keeping exports and investment strong”, said Kwon Hyo-sung of Bloomberg Economics.

Semiconductor exports soared by 218.7% year-on-year to $148 billion (€127bn) in the third quarter, according to government figures.

On an annual basis, the economy grew by 3.4%, slightly below the 3.7% recorded in the previous quarter.

Real gross domestic income (GDI), which measures purchasing power, surged by 18.8% year-on-year, marking its fastest increase in nearly 49 years, supported by rising semiconductor prices.

South Korea’s economy had already recorded its fastest growth in more than five years in the first quarter, expanding by 1.7% quarter-on-quarter amid strong demand for semiconductors.

Growth remains ‘heavily concentrated’ in chip sector

However, analysts cautioned that South Korea’s economic growth remained heavily reliant on the semiconductor industry.

“The risk is that growth stays heavily concentrated in the semiconductor sector, leaving South Korea exposed to a slowdown in global AI spending,” said John Bromhead, a senior economist at Moody’s Analytics.

The surge in semiconductor demand has also helped push the country’s current account surplus to record highs.

South Korea posted a current account surplus of $116.6 billion (€100bn) in the second quarter.

Source: www.euronews.com