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

With the Bank of Korea’s key interest rate decision and economic outlook announcement set for August 27, the majority of domestic experts have forecast that South Korea’s economy will grow by 3.2% to 3.4% this year. Every expert who responded to the survey expects the growth rate to exceed 3.0%, with some predicting up to 3.8%. Despite the base effect from this year’s strong growth, most also expect economic growth in the mid-2% range to continue into next year. This outlook is based on the view that the semiconductor boom will drive a recovery in equipment investment and private consumption, thereby supporting domestic demand.

Concerns about high inflation persist, but many expect the rise in consumer prices to moderate somewhat next year. However, experts noted that the positive spillover effects of the semiconductor boom on domestic demand will raise demand-driven inflationary pressures, meaning the pace of price moderation is expected to be slow. As a result, many anticipate that core inflation—consumer price inflation excluding volatile items such as energy and food—will remain elevated through next year. Most experts also pointed to high inflation and the semiconductor sector as the key variables for the upcoming interest rate decision.

Gone Are the Days of 2% Growth... Experts See Growth Bottom at 3.1%, Top at 3.8%

According to a survey conducted by The Asia Business Daily of 14 economic experts from domestic and international think tanks, securities firms, and banks between August 18 and 21, all respondents (2 non-responses) believe the nation's economic growth rate this year will surpass 3.0%. Specifically, the most common forecasts were 3.2% and 3.4%, each given by three experts, followed by 3.3% from two experts. Three others projected growth in the 3.6% to 3.8% range, suggesting that expectations of growth above 3.5% are not uncommon.

Compared to the previous month’s survey, in which 5 out of 11 experts (45%) maintained a forecast in the 2% range, there has been a marked shift within a month toward expecting the economy to grow at a higher-than-expected rate. All respondents (four non-responses) anticipated that the Bank of Korea would also revise its annual growth forecast into the 3% range in its August outlook. Breaking down their projections: three projected 3.2%, while 3.3% and 3.4% each got two votes. Meanwhile, forecasts of 3.0%, 3.1%, and 3.5% were each given by one respondent. In May, the Bank of Korea had previously revised up its 2026 growth outlook to 2.6%.

This year’s strong forecast of 3% growth is driven by the judgment that the semiconductor supercycle, which has entered a period of hyper-boom, will not only boost exports but also improve domestic demand. Jae Kyun An, a researcher at Korea Investment & Securities, said, “With robust exports centered on semiconductors, improved income conditions, increased equipment investment, and greater government spending, annual growth in the 3% range should be achieved without difficulty.” Joon Hee Han, head researcher at NH Financial Research Institute, also predicted, “Stronger-than-expected export and equipment investment growth centered on semiconductors will drive higher economic growth.” Yeo Sam Yoon, a researcher at Meritz Securities, stated, “With growth already reaching the high-2% range in the first half, mid-3% growth is possible even if momentum weakens in the second half of the year.”

Looking to next year, many experts forecast that the spillover effect of semiconductors on domestic demand will start to materialize in earnest, resulting in economic growth exceeding potential growth rates. Of the 12 who responded to this question, 9 (75%) projected next year’s growth to be in the 2.3%–2.5% range, with 2.5% being the most common forecast (four experts), followed by 2.4% (three experts), and 2.3% (two experts). The remaining three anticipated growth above 3.0% next year as well.

Moonjong Hur, head of the management research center at Woori Financial Research Institute, said, “Despite the base effect dragging down the growth rate, continued increased capital expenditure related to AI and an actively expansionary fiscal stance will mean growth remains above the country’s potential.” Yoonmin Baek, a researcher at Kyobo Securities who also forecast 2.5%, explained, “Considering bottlenecks in the semiconductor industry, export growth may not decelerate as quickly as in the past. As investment in AI data centers spreads to construction and infrastructure, domestic investment will drive growth next year.” He added, “Solid corporate tax revenue will allow for increased government spending, supporting the lower bound of growth.” Seokgil Park, economist at JPMorgan, who had the highest projection at 3.3%, cited “capacity investment increases due to improved terms of trade and corporate profits can create significant upward momentum for growth, even with some time lag, through next year.”

Semiconductor-Driven ‘Chipflation’, Consumer Recovery to Push Up Core Inflation... Next Year, Consumer Inflation < Core Inflation

Among the 12 experts who responded to the question on consumer price inflation this year, seven predicted the same 2.7% rate as the Bank of Korea’s May forecast, making this the most common response. Two experts each forecast 2.6% and 2.8%, while one forecast 3.0%—most thus foresee a high annual increase of 2.6%–2.8%. Despite government policies such as a cap on petroleum prices and lower fuel taxes dampening the impact of oil price shocks, the prolonged war in the Middle East and this July’s rebound in oil prices are expected to keep inflation from falling rapidly. Yoonmin Baek, a researcher, remarked, “As the U.S.–Iran war drags on, international oil prices are rebounding from their July lows. There is a real possibility that the peak-out of inflation may proceed more slowly than expected.”

All 12 experts agreed that next year, a moderate relaxation of international oil prices is likely, and that the annual increase in consumer prices will be lower than this year. The majority (seven experts) foresee a 2.3%–2.4% increase, while two expect 2.5%. Still, while inflation may slow, most project that the pace of moderation will be gradual. Baek stated, “With oil prices peaking out in the second half of this year, inflation levels will be lower next year, but robust domestic consumption among high-income earners along with continued inflow of foreign tourists will keep the lower bound of inflation higher than in the past.”

Core inflation, a key variable for monetary policy, is expected to remain elevated both this year and next. Core inflation measures underlying price pressures by excluding volatile categories such as energy and food from CPI, making it a vital gauge of long-term inflation trends.

The majority of experts (8 respondents, 4 non-responses) expect this year’s core inflation to outpace the Bank of Korea’s May forecast of 2.4%. Four chose 2.5% as their forecast, followed by three at 2.6%. One expert predicted 2.7%. Reasons cited included secondary spillover effects such as rising petroleum product prices due to high oil prices, higher IT product prices due to higher semiconductor prices, and improved income conditions stemming from the semiconductor sector boosting consumer spending—and thus core inflation. Yonggu Cho, a researcher at Shin Young Securities, explained, “Chipflation and demand-side upward pressures are partially reflected, so actual inflation will somewhat exceed initial forecasts.”

Looking ahead to next year, most expect core inflation to decline only gradually. Among 10 experts, three forecasted 2.3% (matching the Bank of Korea’s May projection), while two each chose 2.4% and 2.5%. Two also projected a 2.6–2.7% rate. Six out of 10 respondents said they expect core inflation to be higher than headline consumer price inflation next year, suggesting that underlying upward pressures will persist. Jae Kyun An, who projected 2.7%, said, “With durable goods, especially IT products, and petroleum product prices rising, core inflation’s upward momentum will continue through the fourth quarter of this year. Next year, as income conditions improve and consumption recovers, core inflation’s lower bound could remain rigid.” Baek, too, added, “With increased domestic consumption and government spending, there is a high chance the decline will be limited next year as well.”

Key Interest Rate Variables: High Inflation Plus Semiconductors..."Exchange Rate, U.S. Policy, Real Estate Also Not to Be Overlooked"

With the base rate this month hard to predict between a hold and a hike, most experts pointed to high inflation and strong semiconductor-driven exports as the biggest variables influencing the key rate decision. Of 11 respondents (multiple answers allowed; three non-responses), seven cited high inflation caused by oil prices and sustained high oil prices as the most decisive factor. Six selected robust exports attributable to the semiconductor supercycle. Many also listed demand-driven inflation (three respondents). High inflation is considered a reason for a rate hike, while strong exports are seen as both a mitigating factor if rates rise and a source of upward price pressure.

Jae Kyun An, researcher, said, “Income conditions improved sharply in the first half, so the potential to further stimulate domestic demand has grown. The Bank of Korea will probably focus monetary policy on whether demand-driven inflation will persist.” Joon Hee Han, head researcher, added, “Cost-side pressures from high oil prices and demand-side pressures from income and consumption recovery will be the key variables in the policy trajectory going forward.”

The exchange rate (four respondents) was also frequently mentioned as an important factor. Baek commented, “Inflation will be the most important factor in policy decisions, but exchange rate movements also play a critical role. If the recent downward trend in the won-dollar rate continues, it could help reduce pressure to hike rates.” Yeha Ahn, a researcher at Kiwoom Securities, likewise commented, “Oil prices and exchange rate factors that can affect inflation are also key policy variables.” The real estate market (four respondents) and U.S. rate decisions (three respondents) were also highlighted as factors that should not be ignored. Researcher Yonggu Cho observed, “U.S. monetary policy remains a vital variable, and if the real estate market remains overheated, this could impact the terminal rate level as well.”

Experts Who Participated in the Survey (in alphabetical order)

Seungwon Kang, researcher at NH Investment & Securities; Dongrak Gong, researcher at Daishin Securities; Sungsoo Kim, researcher at Hanwha Investment & Securities; Jinwook Kim, Chief Economist at Citibank; Hongchul Moon, researcher at DB Securities; Sanghyun Park, researcher at iM Securities; Seokgil Park, economist at JPMorgan; Yoonmin Baek, researcher at Kyobo Securities; Yeha Ahn, researcher at Kiwoom Securities; Jae Kyun An, researcher at Korea Investment & Securities; Yeosam Yoon, researcher at Meritz Securities; Yonggu Cho, researcher at Shin Young Securities; Joon Hee Han, head researcher at NH Financial Research Institute; Moonjong Hur, head of the management research center at Woori Financial Research Institute.

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