The Bank of Korea will hold a monetary policy meeting on May 28 to announce its revised economic outlook. This will be the first forecast since the economy exceeded expectations in the first quarter, drawing significant attention. With a clear structural improvement in the semiconductor sector, there is keen interest in how much the Bank will raise its annual economic growth forecast for this year.
According to the Bank of Korea, the initial forecast for the first quarter's real GDP growth was around 0.9%. However, the actual growth rate was 1.7%, nearly double the Bank's projection. Analysts suggest that even if the remaining quarters see zero growth, an annual growth rate in the 2% range is still likely.
Major domestic research institutions and the government have already adjusted their growth expectations upward. The Korea Development Institute (KDI) raised its growth forecast from 1.9% to 2.5%, an increase of 0.6 percentage points. The Korea Financial Research Institute also revised its estimate from 2.1% to 2.8%. Domestic securities firms, including KB Securities and Samsung Securities (2.7%), Meritz Securities (2.6%), NH Investment & Securities (2.5%), Hana Securities (2.4%), and Hyundai Motor Securities (2.3%), expect growth to be stronger than previously anticipated.
The driving force behind this growth is undoubtedly the semiconductor industry. The demand for high-bandwidth memory (HBM) and server memory continues to expand due to the proliferation of artificial intelligence (AI), contributing to record-high current account surpluses. In March, the current account surplus reached $37.33 billion, significantly surpassing the previous record of $23.19 billion in February. A Bank of Korea official stated, "Companies are increasing capital investments, and imports of capital goods are also rising significantly. Given the trends in semiconductor export prices and volumes, the semiconductor sector is not expected to face any major disruptions."
Global market perspectives are even more optimistic than domestic forecasts. Recently, the average growth forecast from eight major investment banks has risen to around 2.4%. JP Morgan provided the most optimistic estimate, increasing its projection from 2.2% to 3.0%, while Citigroup (2.9%) and Goldman Sachs (2.5%) raised their forecasts by 0.7 and 0.6 percentage points, respectively. Barclays also adjusted its estimate from 2.0% to 2.4%.
There is speculation that the Bank of Korea may raise its growth forecast this year. On May 11, Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol indicated that, buoyed by the semiconductor boom and rising exports, the economic growth rate would likely exceed the target of 2.0%. Historically, the Bank has adjusted its growth forecasts upward following unexpected growth in the first quarter. For instance, after the first quarter of 2024 saw a GDP growth rate of 1.30%, well above the expected 0.50%, the Bank raised its annual growth forecast from 2.1% to 2.5% in its May revision.
However, inflation remains a significant concern for the Bank of Korea. Ongoing supply-side pressures due to the prolonged conflict in the Middle East are contributing to rising inflation. The consumer price inflation rate has shown a sharp upward trend, with increases of 2.0% in January, 2.0% in February, 2.2% in March, and 2.6% in April, all significantly above the Bank's inflation target of 2.0%. Lee Dong-won, head of the Bank's Economic Statistics Division, noted, "As inflationary pressures increase, there are downward factors affecting growth. The final growth trajectory will depend on the trends in semiconductor exports and the effectiveness of government policies."
* This article has been translated by AI.
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