“I think this is a very important turning point” Shin said of the country's growth potential during a parliamentary audit.
South Korea’s potential growth rate — the pace at which the economy can expand without generating excessive inflation — has been estimated to have fallen below 2 percent after the economy underperformed its potential for the last four years.
The Bank of Korea (BOK) plans to publish a new estimate of Korea's potential growth rate in a working paper before the end of the year.
The central bank last estimated potential growth at around 2 percent for 2024 to 2026, down from around 5 percent in the early 2000s and the mid-3 percent range in the 2010s.
Shin said total factor productivity (TFP), rather than labor input alone, would be critical to determining whether the recent AI and semiconductor investment boom could lift Korea's underlying growth capacity.
The assessment comes as the BOK prepares to raise its forecasts for both economic growth and inflation.
“We are looking at growth this year and next year as higher than our August forecasts,” Shin said.
The BOK forecast in August that South Korea's economy would expand 3.3 percent in 2026 and 2.9 percent in 2027.
It said after Thursday's monetary policy meeting that growth in both years would “considerably exceed” those projections, supported by strong semiconductor exports and investment and their growing spillover into domestic demand.
Shin said the stronger growth outlook would also put upward pressure on next year's inflation forecast and would be reflected in the central bank's monetary policy.
The BOK held the base rate at 3.00 percent on Thursday in a unanimous decision after quarter-percentage-point increases in July and August.
Shin said Friday that the board would assess the effects of those two increases before deciding whether further adjustments were needed.
He did not endorse market estimates that the terminal rate could reach between 3.50 percent and 3.75 percent.
The central bank will release updated growth and inflation forecasts alongside its final monetary policy decision of the year on Nov. 26.
Shin also said the recent appreciation of the won partly reflected an unwinding of its earlier weakness and stronger confidence in the Korean economy.
Despite the gains, the won remained weaker than its historical average on a real effective exchange-rate basis, he said.
Shin declined to give a specific level for the dollar-won exchange rate but said a stronger currency could help contain import prices and improve household purchasing power.
He also said this year's current account surplus was likely to exceed the BOK's August forecast as semiconductor exports remained strong.
On the government's petroleum price cap, Shin said the measure had lowered inflation by about 0.6 percentage point this year by limiting the pass-through of higher fuel costs to other goods and services.
He said the measure had produced a significant short-term effect but should not be maintained indefinitely because prolonged price controls could distort prices and increase the fiscal burden.
Shin also supported investment aimed at raising Korea's long-term growth rate while warning that permanent spending programs financed by temporary revenue could weaken fiscal sustainability.
The remarks reinforced the BOK's view that stronger AI-led growth could improve Korea's longer-term economic capacity while keeping near-term inflation pressure high enough to delay any shift toward monetary easing.
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