OECD Raises South Korea's Growth Forecast to 2.6%, Says Semiconductor Demand Could Drive Further Increase

"Highest Upward Revision Among G20"

Nominal Growth Rate Estimated at 10.4%

The Organisation for Economic Co-operation and Development (OECD) has raised its forecast for South Korea's economic growth rate this year to 2.6%, an increase of 0.9 percentage points from its previous projection. The main factors cited for the upward revision were increased exports driven by the semiconductor boom and a recovery in consumption supported by government fiscal stimulus.

On June 3 (local time), the OECD released its 'OECD Economic Outlook' report containing these details. The OECD publishes economic forecasts for the global economy, its member states, and the G20 twice a year, in June and December.

This OECD growth outlook is in line with the projection made by the Bank of Korea. Last month, the Bank of Korea also upgraded its forecast for this year’s economic growth rate to 2.6%. The Korea Development Institute (KDI) forecast 2.5%, the government projected 2.0%, and the International Monetary Fund (IMF) predicted 1.9%.

According to the Ministry of Economy and Finance, South Korea saw the largest upward revision among the G20 countries in the OECD’s growth outlook. The OECD lowered its forecast for global economic growth by 0.1 percentage points to 2.8%, while maintaining its G20 outlook at 3.0%. The United States projection remained unchanged at 2.0%, while Japan’s was revised down from 0.9% to 0.6%.

The OECD highlighted that if demand for advanced semiconductors strengthens further, South Korea’s growth rate could exceed expectations, emphasizing the positive impact of the semiconductor super cycle on the Korean economy.

On the other hand, the OECD identified supply shortages due to the Middle East conflict, industrial labor disputes, and export restrictions as downside risks for the Korean economy.

The OECD projects South Korea’s economic growth rate for next year to be 1.9%, which is 0.2 percentage points lower than its March report.

This year’s consumer price inflation is expected to be 2.6%, down 0.1 percentage points from the previous projection of 2.7%. For next year, the OECD forecasts inflation at 2.2%, which is 0.2 percentage points higher than the March projection.

According to this report, the OECD expects South Korea’s GDP deflator for this year to be 7.6%. The Ministry of Economy and Finance stated that, based on the OECD’s 2.6% growth rate and the GDP deflator, this year’s nominal growth rate is estimated to be about 10.4%.

If the OECD’s projections materialize, various fiscal indicators will also improve. The OECD forecasts that South Korea’s general government debt-to-GDP ratio will be 48.2% this year and 50.2% next year. These figures are 3.8 percentage points and 4.8 percentage points lower, respectively, than the estimates in the report from last December.

Although industrial production has turned positive, the OECD diagnosed that, excluding semiconductors and shipbuilding, business and management confidence in the future economic outlook remains weak in the manufacturing sector based on South Korea’s first-quarter economic conditions.

Private investment, led by semiconductors, is expected to broaden into other sectors toward the end of the year.

The OECD noted that fuel price controls and tax cuts implemented in response to the Middle East conflict help mitigate inflationary pressures from energy supply shocks, but also warned that these measures could prolong the impact.

The OECD recommended that policies responding to energy price shocks should prioritize targeted support for vulnerable households and businesses. However, it also advised that energy price controls, fuel tax cuts, and export restrictions should be phased out gradually.

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