Moody's raises South Korea's 2024 growth forecast to 3.5% on chip boom

International credit rating agency Moody's has significantly upgraded its economic growth forecast for South Korea for the current year, projecting a 3.5% GDP expansion. This upward revision is largely attributed to the robust performance and anticipated continuation of the semiconductor industry's boom.

In its latest regular review of South Korea's credit rating, Moody's estimated the nation's GDP would grow by 3.5% in 2024 and 2.7% in 2025. This projection marks a substantial increase from the 1.8% forecast made in February and a 1.0 percentage point rise from its May global economic outlook. The agency anticipates that the "super cycle" in semiconductors will persist, bolstering exports and contributing significantly to economic growth.

Moody's noted that demand for chips remains strong, with limited realistic alternatives to South Korea's advanced memory chip suppliers. The agency highlighted that South Korea's merchandise exports increased by 51% year-on-year from January to July, largely supported by "very strong semiconductor growth."

Furthermore, Moody's expressed a positive view on the government's three major "mega projects" focused on semiconductors, physical AI, and AI data centers. The agency believes these initiatives, aimed at creating new growth drivers and decentralizing economic activity from the Seoul metropolitan area, could lead to improved productivity and enhanced potential growth if successful.

The agency also projected an improvement in fiscal conditions due to economic growth and resulting excess tax revenues. Moody's forecasts South Korea's fiscal deficit to GDP ratio to be 3.8% this year, slightly lower than initially targeted. However, it identified rising expenditures due to an aging population, defense costs, and the need for increased investment to maintain export competitiveness as potential future fiscal burdens.