BOK: "Nominal GDP Growth Driven by Semiconductor Price Surge, Not Domestic Inflation"

The Bank of Korea explained that the sharp increase in nominal growth rate in the first quarter of this year was not due to domestic inflation, but rather to higher export prices led by semiconductors, which improved the profitability of Korean companies. The bank noted that, structurally, the current situation is different from the 1970s and 1980s, when nominal growth rates rose as a result of higher domestic prices.

Kim Hwayong, Head of the National Income Department at the Bank of Korea, is speaking at the 2026 Q1 National Income (Provisional) Briefing held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 9th. Photo by the Bank of Korea

Kim Hwayong, Head of the National Income Department at the Bank of Korea's Economic Statistics Bureau 2, made these remarks at a press briefing on the "Provisional First Quarter 2026 National Income" held on June 9.

In the first quarter of this year, nominal gross domestic product (GDP) increased by 10.5% quarter-on-quarter, marking the first double-digit growth rate since the first quarter of 1976 (13.0%). Year-on-year, nominal GDP grew by 17.1%, the largest increase since the third quarter of 1995 (19.2%).

Kim explained, "The sharp expansion of nominal GDP growth in the first quarter was due to a strong 3.8% year-on-year increase in real GDP, combined with a significant 12.9% rise in the GDP deflator driven by higher semiconductor export prices." Nominal GDP is calculated by reflecting the GDP deflator, a comprehensive price index, in real GDP.

He emphasized that the recent growth in nominal GDP is not the result of higher domestic prices, but rather a result of rising export prices led by semiconductors, which in turn improved corporate profitability. Typically, when the gap between nominal GDP and real GDP widens, it is viewed negatively as an indication that inflationary pressure is outpacing actual growth. However, he stressed that this time the situation is different.

Kim noted, "If we look at the details of the GDP deflator for the first quarter of this year, the domestic demand deflator increased by just 2.1%, whereas the export deflator surged by 23.5%. The rise in the GDP deflator was not due to higher domestic prices, but to a rise in export prices—mainly semiconductors—which improved the profitability of our companies and led to an expansion of nominal GDP." He added that this should be distinguished from the "cost-push" nominal GDP expansion that occurred during the high-growth years of the 1970s and 1980s.

For this reason, he expects the current expansion of nominal GDP to have a positive impact on the Korean economy. Kim said, "The increase in corporate operating profits will lead to higher corporate tax revenues, which can be used not only for fiscal stability but also as resources for raising potential growth rates through structural reform and fostering future industries. Expanding research and development (R&D) and facility investment could also help stimulate domestic demand."

He also noted that the nominal GDP expansion is likely to lower the household debt-to-GDP and government debt-to-GDP ratios. Kim said, "International organizations such as the Bank for International Settlements (BIS) measure household and government debt as a ratio to nominal GDP for international comparison. With the expansion of the nominal GDP growth rate, there is a high possibility that these ratios will fall significantly."

The improvement in the profitability of the Korean economy is also confirmed by real gross domestic income (GDI). In the first quarter of this year, Korea's real GDI increased by 13.2% year-on-year, significantly outpacing the real GDP growth rate of 3.8%.

Real GDI is similar to operating profit for a company. It reflects the actual purchasing power of the income generated by a country's production. Typically, when the price of imported goods falls or the price of exported goods rises, real GDI increases.

Kim explained, "Usually, when international oil prices rise, Korea's terms of trade worsen, so GDI grows less than GDP. However, this time, the price increase of semiconductors—the country's main export—has outpaced the increase in the price of imported energy such as crude oil, resulting in a rare situation where GDI has significantly outpaced GDP."

The sharp increase in real GDI means that there are more resources available for consumption and investment.

Kim added, "When export or import prices fluctuate rapidly as they have recently, it is important to supplement the production-based real GDP perspective with nominal GDP and real GDI, which reflect actual purchasing power, in order to better assess economic conditions."

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