Semiconductor Boom Lifts Growth Expectations; 4% Forecasts Emerge

South Korea's economic growth forecast for this year has been revised upward into the 3% range, with some institutions even predicting a 4% growth rate, largely fueled by a booming semiconductor industry. This optimistic outlook suggests that the Bank of Korea and the government are likely to announce substantially higher growth projections than previously anticipated.

Institutions such as Capital Economics in the UK have progressively increased their forecasts, moving from 1.0% in February to a current projection of 4.0%. They attribute this upward revision to the strong wave of export demand driven by artificial intelligence, underscoring the pivotal role of semiconductors in the nation's economic performance.

Several other domestic and international financial institutions have also raised their outlooks. Bloomberg's compilation shows 11 out of 42 surveyed institutions expect South Korea's economic growth to exceed 3%. JP Morgan forecasts 3.7%, while National Australia Bank, Australia and New Zealand Banking Group, and iM Securities predict 3.6%. Bloomberg Economics and Citi have both projected 3.5% growth.

Citi recently increased its forecast from 3.1% to 3.5%, incorporating the impact of recent major project announcements, robust economic indicators in April-May, infrastructure investment plans, and the potential for a supplementary budget of over 25 trillion won by early September. Our Financial Management Institute also significantly raised its forecast from 2.0% to 3.0%, citing that the positive effects of export and investment growth in semiconductors, along with the execution of the supplementary budget, are expected to largely offset shocks from rising international oil prices due to the Israel-Iran conflict.

The Bank of Korea is also likely to revise its May forecast of 2.6% upward in its August economic outlook. This adjustment is supported by the confirmed first-quarter real GDP growth rate of 1.8%, which was 0.1 percentage points higher than the preliminary estimate. Bank of Korea Governor Shin Hyun-song himself indicated that the annual growth forecast would mechanically be revised upward from 2.6%. The government is also anticipated to significantly raise its growth forecast, initially set at 2.0% for the year, in its economic strategy report for the second half of the year.