Bank of Korea "Solid Growth to Continue in Second Half... Forecast Raised to 3.0%"

August Economic Outlook Report

Quarter-on-Quarter Growth: 0.3% in Q3, 0.5% in Q4
Export and Investment Boom Driven by IT
Consumption Recovery Also Supported
Disruptions in Middle Eastern Energy Supply Chains Expected to Ease

The Bank of Korea has raised its growth forecast for this year to 3.3%, projecting that Korea’s solid growth momentum will continue in the second half. The central bank expects the ongoing strong performance in exports and investment, led by the semiconductor sector, to persist, while consumer spending is also likely to maintain a healthy recovery. It also anticipates that disruptions to energy supply chains originating from the Middle East will gradually subside, leading to an easing of sluggishness in the non-IT sector as well.

In its "August Economic Outlook" report released on August 27, the Bank of Korea projected that the Korean economy will grow by 3.0% year-on-year in the second half of 2026. This represents an upward revision of 1.0 percentage point from the 2.0% projection provided last May. Specifically, it forecasts growth of 2.6% in the third quarter and 3.3% in the fourth quarter. Compared to the previous quarter, the respective forecasts are 0.3% and 0.5%.

The Bank of Korea noted that, although the growth rate will temporarily slow in the third quarter due to base effects from previously high growth, it expects a recovery in the fourth quarter.

By sector, private consumption is projected to continue its recovery on the back of improved income conditions. While there have been some signs of adjustment in the stock market—mainly affecting discretionary goods such as automobiles and major home appliances in the third quarter—the easing of oil price burdens and robust launches of certain IT products are sustaining a moderate recovery. As a result, the bank raised its forecast for private consumption growth in the second half from 1.5% to 1.7%.

The outlook for construction investment growth in the second half has also been revised up from 1.6% to 1.8%. This is attributed to a recent rebound in building starts, a leading indicator, and the sustained expansion of investment spending related to AI, such as semiconductor plants and data centers. However, the Bank of Korea expects the pace of recovery to be gradual, owing to rising construction costs, increased market interest rates, and the accumulation of unsold homes outside the Seoul metropolitan area.

The main driver behind the upward revision of the overall growth rate is facilities investment, with its forecast revised sharply upward from 4.3% to 8.3%, and goods exports from 2.4% to 8.7%. Facilities investment remained strong in the first half of the year, mainly due to machinery such as semiconductor equipment; the upward trend in machinery imports is continuing into the third quarter, and domestic shipments of Korean-made machinery are showing ongoing improvement, maintaining robust growth. The Bank of Korea assessed that "thanks to increased global demand, favorable financial conditions, and supportive government policies, semiconductor companies are rapidly increasing their investment, and this rapid growth will continue going forward."

Goods exports are also projected to show steep gains, as the spread of artificial intelligence (AI) technology boosts not only semiconductor exports but also non-IT exports. Customs-cleared exports—a leading indicator used to predict real GDP—are also expected to increase sharply, mainly driven by the semiconductor sector. On the back of strong performance in semiconductors and computers, the Bank of Korea expects total exports for both this year and next year to exceed USD 1 trillion.

The Bank of Korea projects that this robust trend will continue into the first half of next year. It sharply raised its 2027 growth forecast to 2.9%, up 0.8 percentage points from the projection in May, with forecasts of 2.4% growth in the first quarter and 2.6% in the second quarter. However, the Bank of Korea noted, "There remain significant uncertainties regarding the pace of AI investment, the situation in the Middle East, and U.S. tariff policies," adding that "the direct benefits of the semiconductor boom are concentrated in certain industries and groups, which could somewhat limit the broader positive impact."

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