Bank of Korea Governor Shin Hyun-sung: South Korea's Economic Conditions Favorable Compared to Eurozone

Bank of Korea Governor Shin Hyun-sung reiterated his commitment to raising the benchmark interest rate, stating that the challenges in implementing monetary policy arise from conflicting indicators such as growth rates and inflation. He noted that currently, all indicators in South Korea point in the same direction.

During a policy discussion with Isabel Schnabel, Executive Board Member of the European Central Bank (ECB), at the '2026 BOK International Conference' on June 1, Shin remarked, "It is difficult to determine how much attention should be paid to inflation when the economy is weak, but I expect the GDP gap to be positive next year. When the economy is strong, the dilemmas decrease."

He highlighted that South Korea shares significant similarities with the Eurozone, particularly in its sensitivity to energy price shocks, noting the country's high dependence on energy imports from the Middle East.

Shin explained, "When oil prices rise, the deterioration in trade conditions slows down growth in gross domestic income (GDI) compared to GDP. However, this time, GDI has outpaced GDP, thanks to strong semiconductor exports that have provided more than adequate compensation for price increases."

He added, "The Bank of Korea has much greater flexibility in conducting monetary policy and is likely to manage inflation effectively. Strong semiconductor figures are expected to reflect positively on nominal GDP, which will have beneficial effects on household and public debt."

Shin concluded that he believes South Korea's situation is more favorable than that of the Eurozone and emphasized the need to leverage the current favorable conditions to the fullest extent.

In response, Schnabel noted, "Global pipeline pressures are higher now than they were in 2022 when Russia invaded Ukraine," and pointed out that even China is experiencing relatively strong producer price inflation, which could impact supply chains.

She forecasted that inflationary pressures are likely to rise globally, stating, "The Eurozone has experienced relatively strong service inflation over the past few years, while goods inflation has not been as pronounced. However, price pressures are expected to be higher in goods."

Schnabel also mentioned the uncertainty surrounding future interest rate decisions due to ongoing conflicts in the Middle East, adding, "Compared to 2022, we are unlikely to see prices rise to double digits again. Whether there will be interest rate hikes remains to be seen."