Nominal GDP Growth Exceeds 20% in First Half; BOK Warns of Widening Disparities Beyond Semiconductors

Bank of Korea Releases Monetary and Credit Policy Report (September 2026)
Inflation to Remain Above Target Due to Rising Demand-Side Pressures
Need for Caution as Household-Corporate Sector Divergence May Intensify

The sharp rise in nominal growth is expected to contribute to a solid economic expansion, spreading throughout the economy via increased investment, rising wages, and higher tax revenues. However, analysts point out that inflation is likely to remain above target for a considerable period, mainly due to increased demand-side pressures, and therefore warrants close attention. The expansion of risks related to financial imbalances and the possibility of further divergence between the household and corporate sectors also require careful monitoring.

The Bank of Korea made these comments in its Monetary and Credit Policy Report (September 2026), published on September 10. In the first half of this year, the nominal growth rate exceeded 20% thanks to prosperity in the semiconductor sector, showing an exceptional expansionary trend. Nominal gross domestic product (GDP) grew by 17.1% year-on-year in the first quarter and by 26.4% in the second quarter. The recent surge in nominal growth is mainly driven by a significant improvement in the terms of trade due to rising export prices, which contrasts with previous periods.

The improvement in the terms of trade initially leads to increased corporate profits, which then spread—with a time lag—to the government and households. This year, companies have seen profitability improve not only in the IT sector but also across other manufacturing industries such as shipbuilding and machinery, resulting in a sharp increase in facility investment growth. This trend is expected to continue next year, with robust growth in facility investment anticipated.

The government has also seen a substantial increase in national tax revenues in the first half, largely due to improved corporate performance, and it is expected that tax revenues will rise significantly again next year, enhancing the government's fiscal capacity. Although the wage growth rate for households slowed somewhat in the first half, it is projected that household income conditions will improve going forward, leading to greater consumer spending capacity.

While the surge in nominal growth is expected to sustain solid economic momentum, it is also noted that there are risks of increased inflationary pressures and elevated financial imbalance risks on the demand side. From a growth perspective, exports and investment continue to show robust increases, thanks to the strong semiconductor market, while recovery in consumption is expected to expand as income conditions improve, maintaining solid growth. However, if the positive trend in the IT sector remains limited to related companies and employees, the overall ripple effect on improved income conditions and consumer recovery may also be constrained.

In terms of inflation, with the lingering effects of cost pressures and gradually increasing demand-side pressures, the inflation rate is expected to remain above target for a considerable period. However, the extent to which inflationary pressure spreads will depend on whether the increased income leads more to private consumption rather than saving or asset acquisition.

From the financial stability perspective, the expansion in nominal GDP will help lower the ratio of household debt to GDP, but this ratio still remains high compared to major advanced economies. Given the potential increase in housing demand due to improved income conditions, the need for careful management of household debt remains significant. Analysts also note the importance of monitoring the risks of financial imbalances that could increase due to higher leverage and the interaction with the asset market amid high expectations for asset price growth.

Park Jongwoo, Deputy Governor of the Bank of Korea, said at a press briefing on the same day, "This is the first time we have experienced this nominal income growth rate since the high-growth era of the 1970s." He added, "It is fundamentally changing our economy, making predictions difficult, and monetary policy must necessarily take these changes into serious consideration." He also mentioned that he does not believe there has been any change in the government’s household debt management policy. However, he noted, "The increase in the overall target itself could add pressure to the growth in household lending."

Deputy Governor Park emphasized, "As the surge in nominal growth is expected to have a significant impact on the macroeconomy—including growth, inflation, and financial stability—an effective policy mix is needed to maintain overall macroeconomic stability and to strengthen growth potential."

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