Growth Forecast Raised to 2.6% This Year... Shin Hints at July Rate Hike [BOK Signals Rate Increase]

The forecast for economic growth this year was raised by 0.6 percentage point in just three months. Despite supply chain disruptions and higher energy prices caused by the Middle East crisis, exports led by semiconductors are supporting growth.
On the 28th, the Monetary Policy Board of the Bank of Korea revised its forecast for this year's economic growth to 2.6%. That is 0.6 percentage point higher than the February forecast of 2.0%. Since last August's estimate of 1.6%, the outlook had been raised by 0.2 percentage point in both November and this February, but this time the increase was three times larger.
The improvement was driven by stronger exports of information technology (IT), led by semiconductors. Of the upward revision, IT exports contributed 0.7 percentage point, more than offsetting the -0.4 percentage point drag from the Middle East crisis. Government measures such as a supplementary budget added 0.2 percentage point, while the stock market boom contributed another 0.1 percentage point.
By expenditure component, net exports were the clear leader, contributing 0.85 percentage point. In particular, this year's Current Account Balance surplus was estimated at $250 billion, about 1.5 times the previous forecast of $170 billion. The estimate reflects stronger semiconductor exports and an increase in foreign visitors.
Looking at the components of Gross Domestic Product (GDP), growth in goods exports was projected at 4.9%. That is more than 2.3 times the previous forecast of 2.1%. Facility investment was raised from 2.4% to 4.4%, while private consumption was lifted from 1.8% to 2.0%. Construction investment was cut by 0.4 percentage point, from 1.0% to 0.4%.
A BOK official explained, "In the second quarter, despite the impact of the Middle East crisis and the base effect from the previous quarter, semiconductor exports remain solid, and government policies such as the supplementary budget, along with corporate responses such as inventory use, will cushion the shock and support 0.2% growth." Growth forecasts for the third and fourth quarters were set at 0.0% and 0.4%, respectively.
The growth forecast for next year was also raised to 2.1%, up 0.3 percentage point from the previous estimate of 1.8%. However, downside risks to growth were cited, including prolonged high oil prices and tightening by major economies, investment adjustments over concerns about the profitability of Artificial Intelligence (AI), and U.S. tariff policy.
Even with this stronger growth outlook adding to the case for monetary tightening, the Monetary Policy Board decided to keep the base rate at 2.50% per year. The rate has now been frozen for eight consecutive meetings since it was lowered to 2.50% in May last year.
Governor of the Bank of Korea Hyun-Song Shin said, "The timing and pace of any rate hike will be decided based on incoming data, while assessing the extent of upward pressure on inflation and the trend of economic improvement." Market participants see July, when the next Monetary Policy Board meeting is scheduled, as the earliest possible timing for a hike.
taeil0808@fnnews.com Kim Tae-il Reporter