All Experts Predict Korea’s Growth Will Exceed 3% This Year... Core Inflation to Remain High Through Next Year [Monetary Policy Poll]②

Survey of 14 Domestic and International Economic Experts by Asia Business Daily

Growth Rate for South Korea Most Commonly Projected at 3.2%–3.4% This Year... Some Predict 3.8%

Semiconductor-driven Domestic Demand Effects... Growth to Remain

As the Bank of Korea prepares to announce its policy rate decision and economic outlook on August 27, the majority of domestic experts forecast that Korea's economy will grow by 3.2% to 3.4% this year. All respondents to the relevant survey expect the figure to exceed 3.0%, with some projecting up to 3.8%. Despite the base effect from robust growth this year, experts anticipate that Korea will maintain solid growth in the mid-2% range next year as well. This positive outlook is attributed to the semiconductor boom, which is expected to drive a recovery in domestic demand, including facility investment and private consumption.

While concerns about high inflation persist, most experts believe that consumer price inflation will ease somewhat next year. However, the influence of the semiconductor boom on domestic demand is expected to put upward pressure on demand-side inflation, moderating the pace of price declines. As a result, core inflation—which excludes energy and food prices from the consumer price index—is likely to remain elevated through next year. Most experts identified high inflation and the semiconductor sector as the main variables influencing the upcoming rate decision.

Disappearance of Growth Forecasts in the 2% Range... Expert Projections Range from 3.1% to 3.8%

According to a survey conducted by The Asia Business Daily from August 18 to August 21 with 14 economic experts from domestic and foreign think tanks, securities firms, and banks, all respondents (excluding two non-responses) predicted that Korea's economic growth rate would exceed 3.0% this year. Specifically, 3.2% and 3.4% each received three votes—the highest number—followed by 3.3% (two respondents). Three experts projected a growth rate of 3.6% to 3.8%, indicating that a significant number expect growth to surpass 3.5%.

This marks a notable shift from the previous month's survey, where five out of eleven respondents (45%) maintained forecasts in the 2% range. Within just a month, a greater number of experts now expect Korea's economy to outperform earlier expectations. Consequently, all respondents (excluding four non-responses) believe that the Bank of Korea will also raise its growth outlook into the 3% range in its upcoming August projections. Specifically, 3.2% was chosen by three experts, while 3.3% and 3.4% each received two responses. Additionally, 3.0%, 3.1%, and 3.5% were each cited by one expert. The Bank of Korea previously raised its growth forecast to 2.6% in May this year.

The optimistic outlook for growth above 3% is based on the view that the semiconductor supercycle boom will improve not only exports, but also domestic demand. Jae Gyun An, a researcher at Korea Investment & Securities, stated, "Thanks to strong semiconductor-driven exports and improved income conditions, along with increased facility investment and government spending, achieving annual growth in the 3% range will be feasible." Jun Hee Han, Senior Research Fellow at NH Financial Research Institute, also forecast, "Strong growth led by exports and facility investments in semiconductors is likely to exceed expectations." Yeosam Yoon, a researcher at Meritz Securities, said, "We already achieved growth of nearly 2% in the first half. Even if the momentum slows in the second half, growth in the mid-3% range remains achievable."

Looking ahead to next year, the domestic diffusion effect of the semiconductor boom is expected to fully materialize, leading to growth above the country’s potential rate. Among 12 experts responding to this question, nine (75%) projected growth of 2.3% to 2.5% next year. In detail, four experts forecast 2.5% (the largest group), three chose 2.4%, and two predicted 2.3%. The remaining three experts projected growth above 3.0% next year.

Moonjong Heo, Head of the Management Research Center at Woori Finance Research Institute, said, "Despite the base effect dampening growth, ongoing AI-related capital expenditure and proactive fiscal policy will allow growth to outperform potential." Yoonmin Baek, a researcher at Kyobo Securities, who forecast 2.5%, pointed out, "Given the semiconductor industry's bottlenecks, export growth may not slow as quickly as in the past. Investments in AI data centers are expected to spread to construction and infrastructure sectors, boosting domestic investment and, in turn, growth." He added, "Robust corporate tax revenues will enable higher government spending, supporting the lower bound of growth forecasts." Seokgil Park, an economist at JP Morgan who predicted the highest growth rate of 3.3%, explained, "Improvement in terms of trade and stronger corporate profits will stimulate facility investment and can continue to exert upward pressure on strong growth into next year, even with some delay."

Chip-Driven 'Chipflation' and Consumption Recovery Add Pressure to Core Inflation... Core Inflation to Surpass Consumer Prices Next Year

This year, among the 12 experts responding to the survey, seven projected the consumer price index would increase by 2.7%—in line with the Bank of Korea’s May forecast. Two experts each projected 2.6% and 2.8%, and one anticipated 3.0%, meaning most experts expect a high inflation rate between 2.6% and 2.8%. Government measures such as the oil price cap and fuel tax cuts have limited the impact of oil shocks compared to expectations, but prolonged war in the Middle East and the resulting July rebound in oil prices are seen as factors maintaining downward rigidity in prices. Yoonmin Baek noted, "With the war between the U.S. and Iran dragging on longer than expected, global oil prices have continued to rebound from their July low. There is a possibility that the peak-out in inflation may be more sluggish than initially thought."

Next year, all 12 respondents expect international oil prices to settle lower and, consequently, consumer price inflation to decrease compared to this year. Specifically, seven forecast inflation between 2.3% and 2.4% (the largest group), and two predicted 2.5%. While the level of inflation is expected to be lower, most expect that the pace of decline will be slow. Yoonmin Baek commented, "As oil prices peak and ease in the second half of the year, price levels should come down next year. However, strong domestic consumption among high-income groups and a continued influx of foreign tourists will likely keep the lower bound of inflation higher than in the past."

Core inflation, which has emerged as a key variable in monetary policy, is expected to remain high this year and next. Core inflation excludes volatile items such as energy and food from the consumer price index, so it is used as a barometer for underlying inflationary pressure. Once elevated, it tends to stay high, and is often used as an indicator to gauge long-term inflation trends.

The majority of experts (eight, with four non-responses) anticipate that core inflation this year will exceed the Bank of Korea’s May forecast of 2.4%. Breaking it down, four predicted 2.5% (the most), three chose 2.6%, and some projected as high as 2.7%. These experts cited the secondary impacts of high oil prices on petroleum products, rising semiconductor prices leading to higher IT product costs, and income improvements from the semiconductor sector—factors expected to increase consumption and push up core inflation. Yonggu Jo, a researcher at Shin Young Securities, said, "Chipflation and demand-side pressure are partly reflected, so the figures are likely to exceed previous forecasts."

Looking ahead to next year, core inflation is expected to decline only gradually. Among ten experts, three forecast a 2.3% increase (matching the Bank of Korea's May forecast), two each predicted 2.4% and 2.5%, and two expected rates between 2.6% and 2.7%. Six out of ten believed that next year, core inflation would remain higher than overall consumer price inflation, reflecting persistently strong underlying price pressure in society. Jae Gyun An, who forecast 2.7%, said, "Driven by durable goods, especially IT products, and rising petroleum prices, the upward trend in core inflation will continue through the fourth quarter of this year. Even next year, improvements in incomes could spur consumption and make core inflation more rigid on the downside." Yoonmin Baek also stated, "Due to increased domestic consumption and higher government spending, the decline in core inflation next year is likely to be limited."

Main Rate Decision Variables: High Inflation and Semiconductors Cited... "Exchange Rate, US Monetary Policy, and Real Estate Cannot Be Ignored"

With the prospect of either a rate freeze or a hike making forecasts difficult this month, most experts pointed to high inflation and the export boom from the semiconductor sector as the key variables for the rate decision. Among 11 respondents (multiple responses allowed; three non-responses), seven cited high inflation caused by oil prices and elevated oil prices. Six pointed to the semiconductor supercycle and associated export boom. Many also identified demand-driven inflationary pressure (three respondents). High inflation is typically a reason for rate hikes, while export booms during the semiconductor upcycle help alleviate the burden of raising rates and, at the same time, add to inflationary pressure.

Jae Gyun An noted, "Income conditions improved sharply in the first half, so there is a high possibility of stronger domestic demand going forward. The Bank of Korea is also likely to focus on potential demand-side inflation in steering its monetary policy for the time being." Jun Hee Han, Senior Research Fellow, also predicted, "Cost-side inflation due to high oil prices and demand-side inflationary pressure caused by higher incomes and recovering consumption will remain key variables in determining the future path of monetary policy."

The exchange rate (cited by four) also emerged as a critical factor. Yoonmin Baek explained, "Inflation is by far the most crucial factor in monetary policy decisions, but the exchange rate significantly affects policy as well. If the won-dollar exchange rate continues to decline, as seen recently, this could partially ease the pressure for rate hikes." Yeha An, a researcher at Kiwoom Securities, added, "Factors that can impact inflation, such as oil prices and exchange rates, are also major variables in monetary policy." Recovery in the real estate market (cited by four) and US rate decisions (three) were also pointed out as factors requiring balanced consideration. Yonggu Jo stressed, "US monetary policy remains an important variable. If the real estate market does not cool down, it could affect the terminal level of domestic rates."

Experts Who Participated in the Survey (in alphabetical order)

Seungwon Kang (NH Investment & Securities), Dongrak Gong (Daishin Securities), Sungsoo Kim (Hanwha Investment & Securities), Jinwook Kim (Citibank Korea, Chief Economist), Hongchul Moon (DB Financial Investment), Sanghyun Park (iM Investment & Securities), Seokgil Park (JP Morgan, Economist), Yoonmin Baek (Kyobo Securities), Yeha An (Kiwoom Securities), Jae Gyun An (Korea Investment & Securities), Yeosam Yoon (Meritz Securities), Yonggu Jo (Shinyoung Securities), Jun Hee Han (NH Financial Research Institute, Senior Research Fellow), Moonjong Heo (Woori Finance Research Institute, Head of Center).

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