"My Wallet Is Closed"... Semiconductor-Led Growth in the 3% Range [Click e-Market]

"3% Growth This Year and Next"
Large Current Account Surpluses to Continue Despite Slowing Consumption

A securities industry analysis has found that South Korea’s economy is expected to sustain growth in the 3% range through next year, buoyed by strong semiconductor-led exports and expanded facility investment.

On the 27th, Lee Seung-hoon, a researcher at Meritz Securities, said, “South Korea’s gross domestic product (GDP) in the third quarter exceeded market expectations. Growth driven by exports, facility investment and research and development (R&D) is strengthening to the point that it is surpassing already elevated expectations.”

Rising Semiconductor Prices and Strong AI Infrastructure Exports... Growth Forecasts Revised Upward

According to the Bank of Korea, GDP grew 0.97% in the third quarter of this year from the previous quarter, marking a 3.38% increase from the same period a year earlier. The figure exceeded the market forecast of 0.8%.

Taking this into account, Meritz Securities raised its annual economic growth forecasts for this year and next year from 3.4% and 2.5% to 3.7% and 3.1%, respectively. It projected economic growth of 2.2% in 2028.

“Once again, the improved outlook is centered on exports and facility investment,” Lee said. “The acceleration in price increases for semiconductors and computer components is being accompanied by volume-based export growth in other product categories.”

The firm estimated that export growth, measured on a balance-of-payments (BoP) basis, would reach 65.9% this year and 33.2% next year. It said further gains were likely in nonferrous metals, energy storage systems (ESS) and electrical equipment—products related to artificial intelligence (AI) infrastructure—as well as in export volumes of refined petroleum products and chemicals.

The firm also raised its facility investment growth forecasts to 7.7% this year and 5.6% next year, reflecting the accelerating adoption of semiconductor manufacturing equipment. Taking into account increased momentum for data center and manufacturing plant construction, it also raised its construction investment forecast for next year from 1.2% to 1.7%.

Weak Consumption Weighs on Outlook... Gradual Recovery Expected

Weak domestic demand is seen as a short-term headwind. Reflecting the deepening contraction in consumption toward the end of the quarter, the firm lowered its forecast for private consumption growth this year from 2.4% to 1.9%.

“We have lowered our outlook for private consumption, but maintain our view that it is likely to recover gradually over time,” Lee said. “Rising gross domestic income (GDI) will partly translate into higher employee compensation, including performance bonuses, while increased tax revenue is expected to lead to expanded transfer payments rather than higher government consumption.”

While the forecast for consumer price inflation this year remained at 2.6%, the outlook for next year was slightly raised from 2.0% to 2.2%. The adjustment reflects rising international oil prices amid a prolonged conflict in the Middle East, as well as the possibility of increases in electricity and city gas rates.

Customers shop at the Yangjae branch of Hanaro Mart in Seocho-gu, Seoul. Photo by Kang Jinhyeong.

On monetary policy, the firm forecast that the Bank of Korea would raise its policy rate by 0.25 percentage points in November this year and by another 0.25 percentage points in February next year, bringing it to 3.50%. The forecast takes into account the trend toward price stabilization, financial stability factors such as rising lending rates and delinquency rates, and an upward revision to the potential growth rate. It also judged that a surge in corporate profits was unlikely to spur personal income and, with a lag, drive inflationary pressures excessively higher.

In the foreign exchange market, the firm expected the won to continue strengthening. It lowered its year-end dollar-won exchange rate forecasts for this year and next year from 1,350 won and 1,300 won to 1,320 won and 1,270 won, respectively.

“Current account surpluses this year and next year are projected to reach $488.6 billion and $628.1 billion, respectively, exceeding 21% of GDP,” Lee added. “Continued expansion in facility investment and labor costs, along with stronger shareholder returns, particularly among semiconductor companies, will generate demand to convert current account surpluses into won.”

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