[Monetary Policy Board Poll] ② "South Korea's Growth to Top 3.5% This Year, Remain in 3% Range Next Year"... 'Inflation' Biggest Variable in Rate Decision

The Asia Business Daily Surveys 13 Domestic and International Economic Experts
South Korea's Growth Forecast to Exceed the BOK's Projections This Year and Next
Semiconductor Supercycle Effects... Investment to Drive Growth Next Year
Inflation Also Expected to Exceed the BOK's Target Next Year
“Elevated Inflation” Seen as the Biggest Factor in Rate Decisions

Ahead of the Bank of Korea’s base rate decision on October 22, many domestic and international economic experts forecast that South Korea’s economy would post a strong growth rate in the mid-to-high 3% range this year. They expect growth to continue exceeding expectations in the second half, supported by robust exports and facility investment amid the semiconductor boom. They also expect strong growth in the low 3% range next year, led by government and private-sector investment, as the effects of the semiconductor supercycle continue.

Many experts expect consumer price inflation to ease somewhat next year, but still remain above the BOK’s 2.0% target. In particular, the prevailing view was that core inflation, which excludes food and energy, would remain high at around 2.5% both this year and next. Accordingly, most experts cited elevated inflation as the biggest variable in the rate decision.

Most Forecast Growth of at Least 3.5% This Year... 90% of Experts Say 2.9% or Higher Next Year

In a survey conducted from October 13 to 16, The Asia Business Daily asked 13 economic experts from domestic and foreign economic research institutes, securities firms and banks for their views. Of the 11 respondents, eight (72.7%; two did not respond) forecast that South Korea’s economic growth would reach at least 3.5% this year. Specifically, 3.5% was the most common forecast, with three respondents, followed by 3.7%, with two. One respondent each forecast 3.6% and 3.8%. A forecast of 4.0% was also offered. The forecast range of 3.2% to 3.4%, which was the most common in the August survey at 66.7% (eight of 12 respondents), fell to three respondents.

This reflects upward revisions to growth forecasts by eight experts. Those who raised their forecasts cited continued export strength, particularly in semiconductors, and large-scale facility investment plans proceeding as scheduled. They expected growth in the second half to exceed initial projections as well. Yoon Yeosam, a researcher at Meritz Securities who raised his forecast from 3.4% to 3.7%, said, “With exports performing well on the back of semiconductors, third-quarter growth is also likely to come in at a solid level of around 1.0% quarter on quarter.” Park Seokgil, an economist at JPMorgan who forecast 4.0%, also said, “The effects of the semiconductor supercycle make it highly likely that third-quarter growth will once again exceed expectations,” raising his forecast by 0.2 percentage points.

The semiconductor boom’s role in driving growth in facility investment, in addition to exports, was another reason for the higher growth forecasts. Ahn Jaegyun, a researcher at Korea Investment & Securities who raised his forecast from 3.1% to 3.4%, said, “With the improvement in facility investment continuing since June, the likelihood of an additional upward revision from the BOK’s August forecast of 3.3% has increased.” Han Junhee, a senior researcher at the NH Financial Research Institute, also said, “Alongside robust semiconductor exports, large-scale investment projects are progressing quickly as expected.”

Experts forecast that strong growth in the 3% range would continue next year as well. Eight of the 11 respondents (72.7%; two did not respond) expected growth in the 3% range next year. Specifically, 3.0% and 3.1% were the most common forecasts, with three respondents each, while one respondent each forecast 3.3% and 3.5%. Two experts forecast 2.9%, matching the BOK’s projection. The majority of experts—nine—also raised their growth forecasts for next year compared with August.

Experts expect the effects of semiconductors to support strong growth through government and private-sector investment, even if semiconductor export growth slows somewhat next year. Cho Yonggu, a researcher at Shinyoung Securities who raised his forecast from 2.4% to 2.9%, said, “Exports, facility investment and construction investment are all expected to perform better than previously anticipated,” adding, “Fiscal spending will also increase on the back of the government’s expansionary budget and the Future Response Fund, sustaining robust growth.” Park Sanghyun, a researcher at iM Securities, raised his forecast from 2.4% to 3.1% and said, “Robust semiconductor exports will continue, and public construction investment will also expand.”

Some also forecast that economic polarization could deepen despite strong growth. Ahn Yeha, a researcher at Kiwoom Securities, said, “Growth led by semiconductor exports will continue next year, but K-shaped growth may also intensify.”

Consumer Inflation Expected to Ease to 2.2-2.5% Next Year... Views Differ on Whether It Will Remain High or Stabilize

The most common forecast was that consumer price inflation would remain elevated this year and ease somewhat next year. Eight of the 10 respondents expected consumer price inflation this year to be 2.7%, matching the BOK’s August forecast. One respondent each forecast 2.6% and 2.8%, with all experts expecting a high inflation rate of around 2.7%.

All respondents expected consumer price inflation to fall to 2.5% or below next year. A forecast of 2.3% was the most common, with three respondents, while 2.2%, 2.4% and 2.5% each received two responses. Most therefore expected inflation to be in the 2.2-2.5% range. One respondent also forecast that it would fall to 2.1%.

However, views differed on the inflation outlook for next year. Some expected consumer prices to gradually stabilize, while others forecast that inflation would remain above the BOK’s 2.0% target, with strong upward pressure persisting. Han Junhee, a senior researcher who forecast inflation of 2.5% next year, said, “The impact of rising energy and raw material prices due to the war is expected to continue into next year with a lag, regardless of whether the war ends,” adding, “Demand-side price pressures will also persist, keeping upward pressure on prices next year.” By contrast, Kang Seungwon, a researcher at NH Investment & Securities who forecast 2.4%, said, “The trickle-down effects of the semiconductor boom will be concentrated in investment rather than consumption, so consumer price inflation is expected to stabilize next year.”

Many experts forecast that core inflation, which the BOK is monitoring as a key variable in monetary policy, would remain in the 2.4-2.6% range next year. Three of the eight respondents forecast 2.5%, the most common response, followed by 2.4% and 2.6%, with two respondents each. For this year, five respondents forecast 2.5% and three forecast 2.6%. They expected core inflation to peak this year and gradually stabilize next year, but for the decline to be limited. Heo Munjong, head of the Woori Finance Research Institute, forecast, “Reflecting elevated inflation expectations, rising prices for personal services and improved income conditions amid the semiconductor boom, core inflation will remain sticky at around 2.5%.” Cho Yonggu also said, “It will fall below the mid-2% range starting in the second quarter of next year,” but added, “Although the spillover effects of exports and the current account surplus on domestic demand are limited, inflation is highly likely to decline gradually from a high level due to factors such as chipflation.”

Inflation Unanimously Cited as the Top Variable in Rate Decisions... “Price Pressures from the Semiconductor Boom Also Matter”

With expectations leaning toward the base rate being held unchanged this month, experts agreed that the biggest variable for the BOK’s monetary policy going forward would be how it responds to elevated inflation. All 12 respondents (multiple responses allowed; one did not respond) cited high inflation. However, they differed on which drivers of inflation should take priority. Six respondents identified high oil prices stemming from risks related to the Iran war—in other words, supply-side inflation—as a key variable. Four cited demand-side inflationary pressure caused by the semiconductor boom. Some experts identified core inflation as the biggest variable.

Yoon Yeosam said, “High oil prices are central to major economies’ monetary tightening this year and are a factor that will hamper price stability through next year.” Ahn Yeha also said, “If high oil prices persist, monetary tightening may continue.”

Some experts said the scale of demand-side inflationary pressure could influence the direction of monetary policy going forward. Han Junhee said, “The scale and persistence of demand-side inflationary pressure generated by strong semiconductor exports and increased large-scale investment are expected to be key variables for monetary policy going forward.” Ahn Jaegyun also noted, “If demand-side price pressures materialize amid this year’s better-than-expected improvement in income conditions, the BOK may respond more quickly.”

Some also said that whether the artificial intelligence (AI) investment cycle continues has become more influential in monetary policy decisions. Ahn Yeha said, “If expectations for the AI investment cycle are undermined, growth expectations could be revised downward, leading to a lower terminal rate.” Some analysts said that economic polarization and overheating in the real estate market centered on the Seoul metropolitan area could affect the degree of tightening in the current rate-hiking cycle in different ways. Baek Yunmin said, “Concerns about polarization among households and within industries are growing,” adding, “Weak domestic demand despite solid growth will partly limit the BOK’s monetary tightening.” Yoon Yeosam noted, “The real estate market is a factor that increases the burden of domestic monetary tightening.”

Experts Who Participated in the Survey (in Korean alphabetical order)

Kang Seungwon, researcher at NH Investment & Securities; Gong Dongrak, researcher at Daishin Securities; Kim Jinuk, chief economist at Citibank; Moon Hongcheol, researcher at DB Securities; Park Sanghyun, researcher at iM Securities; Park Seokgil, economist at JPMorgan; Baek Yunmin, researcher at Kyobo Securities; Ahn Yeha, researcher at Kiwoom Securities; Ahn Jaegyun, researcher at Korea Investment & Securities; Yoon Yeosam, researcher at Meritz Securities; Cho Yonggu, researcher at Shinyoung Securities; Han Junhee, senior researcher at the NH Financial Research Institute; Heo Munjong, head of the Woori Finance Research Institute.

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