Prospects for 3% Growth Rate for the First Time in 5 Years Rise... Bank of Korea Also Raises Forecast (Comprehensive)

Following the Government and KDI, the Bank of Korea Raises Growth Outlook to Above 3%
Powerful Semiconductor Boom Offsets High Oil Prices, Spreading Momentum to Domestic Demand
Rising Core Inflation Pressure: Forecast Upgraded to 2.5% for This Year and Next

The Bank of Korea has sharply raised its economic growth forecast for South Korea this year to 3.3%. This move follows similar upward revisions from the government and the Korea Development Institute (KDI), which have all released growth forecasts in the 3% range. The Bank of Korea attributes this strong outlook to a supercycle in the semiconductor industry, which is expected to drive not only exports but also investment and private consumption, thereby boosting overall growth momentum. The Bank of Korea also projects that the growth rate next year will approach 3%.

Shin Hyun-song, Governor of the Bank of Korea, attended the Monetary Policy Committee plenary meeting held at the Bank of Korea in Jung-gu, Seoul on the morning of the 27th, tapping the gavel. August 27, 2026. Photo by Joint Press Corps

With the Bank of Korea joining others in revising up its growth outlook, expectations for achieving over 3% growth this year have strengthened further. If South Korea's annual growth rate exceeds 3% this year as projected, it will mark the first time in five years since 2021 (4.7%) that the nation achieves growth in the 3% range. Notably, in contrast to the rebound in 2021, which was partly due to base effects following the COVID-19 shock, this year’s growth is being driven by fundamental improvements in the economy, thanks to the boom in semiconductors, which adds special significance to this achievement.

According to its revised economic forecast released on the 27th, the Bank of Korea set this year’s real gross domestic product (GDP) growth rate at 3.3%. This is a 0.7 percentage point increase from its previous forecast of 2.6% in May. The growth forecast for next year was also revised upward by a larger margin, from 2.1% to 2.9%, reflecting a 0.8 percentage point increase.

The '3.3%' growth forecast for this year by the Bank of Korea exceeds the estimates made by the Korea Development Institute (KDI, 3.2%), the government (3.0%), the International Monetary Fund (IMF, 2.6%), and the Organisation for Economic Co-operation and Development (OECD, 2.6%).

The Bank of Korea’s upbeat projection of growth above 3% stems from the stronger-than-expected economic momentum, with the economy continuing to deliver ‘surprise growth’ in the second quarter. The growth rate for the second quarter increased by 0.6% compared to the previous quarter, which is far above the Bank of Korea’s previous forecast in May (0.2%). Although there were concerns about potential base effects from the high first-quarter growth rate (1.8%) and the impact of the war in the Middle East, the effects of the semiconductor boom were even stronger, offsetting any downward pressure on growth. As a result, it was mathematically possible for the annual growth rate to remain in the 3% range, even if growth in the second half averaged 0% compared to the previous quarter.

The Bank of Korea’s even higher forecast of 3.3% reflects its expectation that the growth rate will not turn negative in the second half and that a moderate pace of growth will be sustained.

In fact, South Korea's exports have continued to achieve record-breaking performance led by semiconductors into the second half of the year. According to the Korea Customs Service, South Korea’s exports last month reached USD 98.89 billion, up 62.8% from the same month last year. This is the nation's second-highest monthly figure after the historic high in June (USD 102.2 billion). Semiconductor exports (USD 41.2 billion) surged by 176.3% year-on-year, driving the overall increase. For the first 20 days of this month, export value reached USD 55.2 billion, setting a new record for that period as well. Particularly, semiconductor exports (USD 26.0 billion) soared by 198.8% compared to the same period last year, with their share in total exports expanding to 47.2%.

The fact that semiconductor companies are making massive facility investments in response to surging demand for artificial intelligence (AI) semiconductors has also contributed to the Bank of Korea's upward revision of its growth forecast. The Bank of Korea has also focused on the trend of semiconductor-driven economic growth leading to higher household income, which in turn is fueling a recovery in consumption.

Private consumption has moderated somewhat compared to the second quarter, but is still on an improving trend. According to the Credit Finance Association, credit card domestic approval volume last month rose by 3.7% year-on-year. The Consumer Confidence Index (CCSI), released by the Bank of Korea, stood at 104.5 in August, down 2.3 points from the previous month but still above the baseline of 100. A CCSI above 100 indicates that consumer sentiment is more optimistic than the long-term average.

However, certain variables may continue to act as downward pressures on growth. First, secondary effects from high oil prices caused by the war in the Middle East could become more pronounced in the production and service sectors in the second half of the year. Continued uncertainty in the Middle East and renewed rises in oil prices have been cited as factors increasing instability, not only for the growth rate but also for inflation.

The burden of inflation also remains an ongoing issue. In its August economic forecast, the Bank of Korea kept its consumer price inflation rate projections for this year and next year unchanged at 2.7% and 2.3%, respectively. Both figures remain above the Bank’s price stability target of 2.0%. Professor Seok Byunghoon of Ewha Womans University commented, “They likely factored in the recent stabilization of the won-dollar exchange rate, which is expected to lower the rate of increase in import prices,” but also added, “The level is still quite high.”

In particular, the Bank of Korea has raised its core inflation rate forecasts from those made in May and has not eased its vigilance regarding price increases. The core inflation rate is now projected at 2.5% for both this year and next year. These are 0.1 and 0.2 percentage points higher than the previous forecasts for this year (2.4%) and next year (2.3%), respectively. Core inflation is a price index that excludes highly volatile items such as oil and agricultural products, providing a picture of underlying price trends.

The Monetary Policy Committee of the Bank of Korea stated in its statement on the direction of monetary policy, “Going forward, inflation is expected to remain above the target for a considerable period, as the continued transmission of higher cost pressures and rising demand pressures from improved income conditions will persist.”

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