The Bank of Korea sharply raised its growth forecast for this year to 3.3%, saying the economy will move into a phase of expanding above its potential growth rate. Strong semiconductor-led exports are spreading to non-information technology sectors, and large-scale government project investment also contributed to the upgrade.
In its August economic outlook released on the 27th, the BOK projected gross domestic product growth of 3.3% for this year, up 0.7 percentage points from its May forecast of 2.6%. It also raised its forecast for next year to 2.9% from 2.1%.
The semiconductor boom was at the center of the upgrade. The central bank said rising chip exports, driven by expanding global investment in AI infrastructure, will continue and spread to investment, domestic demand and other sectors. It expects the economy to maintain solid growth on export and investment gains from the chip upturn and a consumption recovery supported by improving income conditions.
The quarterly path also points to a recovery in the second half. Growth will slow to 0.3% from the previous quarter in the third quarter because of base effects following a strong reading, before picking up to 0.5% in the fourth quarter, the BOK said.
The chip upturn accounted for the largest share of the 0.7-percentage-point upgrade. The BOK attributed the revision to the semiconductor boom, 0.35 percentage points; revisions to actual figures, 0.2 percentage points; accelerated investment including the three mega projects, 0.1 percentage point; and a smaller-than-expected impact from the Middle East, 0.1 percentage point.
The government's three mega projects in particular were assessed as an added boost to growth through expanded facility investment. The BOK now expects facility investment to grow 6.8% this year, well above its earlier forecast of 4.4%. It also raised its forecast for goods exports growth to 9.7%.
The central bank left room for higher growth under an optimistic scenario. If AI adoption and chip demand prove stronger than expected, growth could exceed the baseline forecast by 0.2 percentage points this year and 0.6 percentage points next year, it said.
Still, the BOK cited the chip cycle and its spillover to domestic demand as the key variables for the growth path. A slowdown in the pace of AI investment or a renewed escalation of Middle East risks were listed as downside factors.
Bank of Korea Governor Hyun Song Shin told a press briefing the same day that the GDP gap could turn positive this year, explaining that fiscal expansion does not necessarily conflict with monetary policy if it works to raise the potential growth rate. The governor also indicated that further strength in the won would be desirable.
The BOK also sharply raised its current account forecast along with growth. It projected this year's current account surplus at a record $450 billion, helped by strong chip exports.
