The Bank of Korea has revised its economic growth forecast for this year from 2.0% to 2.6%. This adjustment is attributed to strong export performance driven by a booming semiconductor industry.
In a revised economic outlook released on May 28, the Bank projected a real GDP growth rate of 2.6% for the year. This figure significantly exceeds the potential growth rate of approximately 1.8% and marks the highest growth rate since 2022, when it was 2.7%. Compared to the forecast made in February, this represents an increase of 0.6 percentage points, the largest adjustment since May 2021, when the forecast was raised from 3.0% to 4.0%.
For the second quarter of this year, the growth rate is estimated to rise by 0.2% compared to the previous quarter. Lee Ji-ho, head of the Bank's Economic Research Department, stated, "The market expects negative growth in the second quarter, but we anticipate positive growth due to the response to the Middle East conflict, with a potential downturn expected in the third quarter. We expect growth to slow down due to base effects from the first quarter and energy shocks from the Middle East conflict."
The Bank of Korea believes that the impact of supply shocks from the Middle East will be partially mitigated by government policies, including supplementary budgets, while strong semiconductor exports will contribute to a higher growth rate than previously forecasted in February. Earlier, the Bank had initially projected a growth rate of 1.8% for 2024 in November, lowered it to 1.6% in May, and then adjusted it to 1.8% in November and 2.0% in February.
The semiconductor boom is also expected to drive the current account surplus. The Bank has significantly raised its forecast for the current account surplus this year to $250 billion, up from the February estimate of $170 billion. This figure is more than double last year's record surplus of $123.1 billion.
Additionally, the Bank has adjusted its growth forecast for next year from 1.8% in February to 2.1%. Previously, the Bank had set the growth forecast for next year at 1.9% in November, lowered it to 1.8% in February, and now raised it again. This adjustment reflects expectations that the semiconductor cycle will continue into next year, boosting growth rates.
In its optimistic scenario for the semiconductor market, the Bank predicts that semiconductor export volumes could expand to the mid-20% range this year and maintain a high level in the mid-10% range next year, potentially increasing domestic growth rates by 0.5 percentage points this year and 0.3 percentage points next year. In this case, inflation rates are also expected to rise by 0.1 percentage points this year and next.
Conversely, in a pessimistic scenario where concerns about the profitability of AI investments lead major tech companies to slow their investment pace, the growth rate is projected to decrease by 0.3 percentage points this year and 0.2 percentage points next year due to a slowdown in semiconductor export growth to the 10% range.
The Bank also presented optimistic and pessimistic scenarios based on developments in the Middle East. If negotiations between the U.S. and Iran are successfully concluded and shipping through the Strait of Hormuz resumes quickly, growth rates for this year and next could each be 0.1 percentage points higher than the baseline forecast. However, if negotiations stall and shipping remains restricted through the end of the year, growth rates could drop by 0.5 percentage points this year and 0.3 percentage points next year.
Nonetheless, there are opinions that the semiconductor boom will not lead to a permanent increase in potential growth rates. Lee stated, "If the semiconductor boom represents a permanent change, it would raise potential growth rates, but if the semiconductor industry operates cyclically, the impact on potential growth rates will be limited. At this point, we do not see a significant increase in potential growth rates."
The Bank has also raised its consumer price inflation forecast from 2.2% to 2.7%, the highest level since 2023 (3.6%). This increase is attributed to expectations of sustained high prices due to the prolonged conflict in the Middle East. The core inflation rate is also expected to reach 2.4%, higher than the February forecast of 2.1%. The inflation trend is anticipated to peak in August of this year.
For next year, the consumer price inflation forecast has been adjusted from 2.0% to 2.3%. While cost pressures from oil prices are expected to ease, demand-side pressures are likely to expand, leading both consumer and core inflation rates to exceed target levels.
* This article has been translated by AI.
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