Korea's Q2 GDP slows, but annual growth stays above 3% on chip demand

A drone photo shows SK hynix chip cluster under construction in Yongin July 13 2026 AJP Yoo Na-hyun — A drone photo shows SK hynix chip cluster under construction in Yongin. July 13, 2026. AJP Yoo Na-hyun

SEOUL, July 23 (AJP) -South Korea’s economy grew 0.6 percent in the second quarter, with quarter-on-quarter growth nearly halving from a surprising 1.8 percent jump in the first three months of the year, but maintaining a robust annual pace and staying on track to meet the government's 3.0 percent growth target on strong semiconductor demand, preliminary data showed Thursday.

According to the Bank of Korea, gross domestic product expanded 3.7 percent from a year earlier, little changed from the 3.8 percent growth recorded in the first quarter.

The moderation in quarterly growth largely reflected weaker capital spending and construction investment amid persistently sluggish domestic demand.

Facilities investment rose just 0.2 percent after surging 6.6 percent in the first quarter, although spending on semiconductor manufacturing equipment continued to increase. Construction investment slipped 0.2 percent, compared with a 1.4 percent gain in the previous quarter.

Private consumption increased 0.4 percent as spending on household appliances and other goods rose alongside expenditure on restaurants, accommodation and other services, while government consumption edged up 0.2 percent on higher health insurance benefit payments.

Services contributed 0.6 percentage point to quarterly growth, double the 0.3 percentage-point contribution from manufacturing, while construction shaved 0.1 percentage point off overall growth. Services output rose 1.1 percent, led by wholesale and retail trade, accommodation and food services, finance and insurance, and information and communications.

Manufacturing expanded 1.2 percent as production of computers, electronic and optical products, along with machinery and equipment, increased.

The gain was substantially weaker than the 3.9 percent manufacturing expansion recorded in the first quarter, when surging demand for artificial intelligence-related chips powered one of Korea's strongest quarterly performances in years.

Construction output fell 1.9 percent as civil engineering activity declined, reversing part of the sector's 2.2 percent rebound in the previous quarter.

Agriculture, forestry and fishing contracted 7.1 percent, reflecting weaker crop production and fishing activity.

Exports rose 1.4 percent from the previous quarter, supported by semiconductors and machinery and equipment, while imports increased 0.8 percent on stronger purchases of automobiles and machinery.

Net exports contributed 0.3 percentage point to quarterly growth, matching the contribution from domestic demand.

Investment in intellectual property products climbed 3.3 percent, driven by research and development and software.