Bank of Korea: "Solid Growth Expected Next Year... Forecast Raised to 2.1%"

Bank of Korea Holds May Economic Outlook Briefing
Q2 Growth Projected at 0.2%... Recovery Expected After Q3 Low Point

2% Range Growth Expected Next Year
"If Oil Prices Stabilize by Year-End, Consumption Will Revive in 2025"

The Bank of Korea has revised its economic growth forecast for South Korea this year upward to 2.6% and expects solid growth to continue into next year. The Bank anticipates that, if the high oil prices driven by the Middle East conflict gradually stabilize starting in the fourth quarter of this year, consumption momentum will strengthen and drive economic growth.

On the afternoon of the 28th, Jiho Lee, Chief of the Research Department (fourth from the left), is speaking at the Economic Outlook Briefing held at the Bank of Korea in Jung-gu, Seoul. Courtesy of the Bank of Korea

At the “May Economic Outlook” briefing held on the afternoon of the 28th, Lee Jiho, Director of the Research Bureau at the Bank of Korea, stated, “Considering last year’s growth rate of 1%, this year’s outlook brings the average annual growth to 1.8%. Raising next year’s growth forecast from 1.8% to 2.1% in this context is highly significant.”

In its economic outlook report released on this day, the Bank of Korea raised its annual growth forecast for this year from the previous 2.0% to 2.6%. The growth forecast for next year was also raised from 1.8% to 2.1%. These projections are higher than those recently announced by the Korea Development Institute, which forecast 2.5% growth for this year and 1.7% for next year. Regarding this, Director Lee explained, “If growth factors, especially international oil prices, gradually stabilize next year, domestic demand and other areas are expected to recover, and we anticipate a somewhat robust growth trend.”

The Bank expects quarterly growth rates this year of 0.2% in the second quarter, 0% in the third quarter, and 0.4% in the fourth quarter. Director Lee commented, “Up until the second quarter, companies are responding by utilizing inventories, and the government is also actively taking measures, which should help buffer the impact. In the third quarter, however, due to the base effect from strong growth in the first quarter and disruptions in raw material supplies in the petroleum industry and related sectors, the growth trend is expected to slow.”

Construction investment is projected to grow by 0.6% this year, signaling a slight rebound. Park Changhyeon, Head of the General Research Team, explained, “The main factor is related to the semiconductor industry. Investments in AI infrastructure, such as semiconductor clusters, are expected to lead the rebound, and government investments in social overhead capital will provide some support. However, we remain cautious because there are still production disruptions related to the Middle East situation, and the impact of rising construction costs could also become apparent.”

During the press briefing, Bank of Korea Governor Shin Hyunsong strongly suggested the possibility of a benchmark rate hike within the year, and it was explained that the latest growth and inflation forecasts also reflect this possibility. Director Lee noted, “When making projections, we first incorporate market expectations to derive growth and inflation rates, and during this process, the implied policy rate that matches the forecast emerges. Naturally, this assumes that the benchmark interest rate will rise from its current level.”

While the semiconductor sector is expected to lead not only exports but also investment and consumption, driving growth in the 2% range this year and next, its impact on raising the potential growth rate is assessed as limited for now. Director Lee stated, “The key issue is how sustainable semiconductor-driven growth will be—whether it’s a temporary or structural change. While we cannot rule out the possibility that the spread of AI could help prevent or mildly stabilize a decline in potential growth, at this point, it does not appear to be accompanied by a significant increase in productivity.”

He added, “It seems that structural change can only be observed retrospectively. For now, we are closely monitoring the sustainability of semiconductor-driven growth.”

This content was produced with the assistance of AI translation services.