SEOUL — While the South Korean economy posted a better-than-expected growth rate in the third quarter (July–September), real gross domestic income (GDI)—a measure of the actual purchasing power of income earned domestically—surged by nearly 19% compared to a year earlier. This marks the largest increase in 48 years and 9 months.

Unprecedentedly high economic growth and income expansion were undeniably spearheaded by semiconductors. According to the Bank of Korea (BOK), the semiconductor sector is estimated to have driven half of the economic growth rate in the third quarter. For the January–September cumulative period, semiconductors and computers accounted for 47% of total exports.

The paradox, however, is that despite a larger economy and rising incomes, private consumption actually retreated. As the general public fails to experience tangible income growth despite strong macroeconomic expansion, households are keeping their wallets closed, preventing domestic demand from showing signs of recovery. Experts point out that this highlights the inherent limitations of an economy overly reliant on semiconductors.

Per Capita National Income Set to Surpass $40,000

According to preliminary real gross domestic product (GDP) figures released by the BOK on the 27th, the third-quarter economic growth rate recorded 1.0% from the previous quarter. Income indicators surged at an even steeper pace, with real GDI jumping 18.8% year-on-year—the largest increase since the fourth quarter of 1977 (19.0%).

The growth was fueled by rising semiconductor export volumes and soaring chip prices, which allowed the nation to earn significantly more income from the same volume of exports. Real GDI reflects the actual purchasing power of income available to citizens.

It has become certain that annual per capita gross national income (GNI) will exceed $40,000 for the first time in history. Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il stated on X (formerly Twitter), "Per capita GNI is projected to surpass $40,000 for the first time in 12 years since entering the $30,000 mark in 2014."

The Ministry of Economy and Finance (MoEF) projected that if the average won-dollar exchange rate of 1,463 won observed between January and September holds through the end of the year, annual per capita GNI could reach $43,500. Some predictions suggest that if the exchange rate maintains the 1,300-won range through year-end, it could even exceed $44,000.

Meanwhile, some warn that if memory semiconductor demand dampens due to concerns over artificial intelligence (AI) overinvestment, economic growth momentum could abruptly cool. BOK Governor Chang-Yong Rhee recently emphasized during a press conference that "it is necessary to examine the impact that persistent concerns over AI investment (including semiconductors) could have on the Korean economy."

"Deepening Reliance on Semiconductors Hinders Domestic Recovery"

A worrisome aspect is that the warmth of growth is not spreading across general private consumption. Third-quarter private consumption contracted by 0.2% compared to the previous quarter. This marks the first time private consumption has declined in 3 years and 9 months, following the fourth quarter of 2022 (-1.0%). Despite soaring income-related economic indicators, it failed to translate into increased spending.

Lee Dong-won, head of the BOK’s Economic Statistics Department II, explained, "A decrease in stock trading volume due to KOSPI adjustments and delayed vehicle deliveries caused by strikes at major automakers dragged down private consumption in the third quarter."

Both the Ministry of Economy and Finance and the BOK projected that private consumption would gradually recover starting in the fourth quarter. They anticipate that substantial dividend payouts and performance bonuses from Samsung Electronics and SK hynix will restore household spending capacity. However, critics point out that corporate dividend and bonus payouts might fail to stimulate domestic consumption while merely widening polarization issues.

Calls are growing louder to cultivate emerging industries such as aerospace and biotech, as well as service industries with high employment-creation effects, to break free from the semiconductor-dependent structure. Cho Joon-mo, a professor of economics at Sungkyunkwan University, advised, "Only when the mid-tier industrial sectors, such as parts, materials, and equipment, come alive can the Korean economy grow evenly. Additional support measures are needed to foster steady growth among small and medium-sized enterprises (SMEs)."

Meanwhile, President Lee Jae-myung stated during a Cabinet meeting, "This is the time to go all-out on improving domestic demand so that the waves of growth can transform into a giant tidal wave that changes the lives of all citizens. I urge relevant ministries, agencies, and offices to intensively implement countermeasures for regional economies and local commercial districts that are showing relatively slower recoveries during the remainder of the year."

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