Morgan Stanley raises South Korea's growth forecast to 3.4%... Bank of Korea seen hiking rates again in August

The firm said the country's fundamentals are improving faster than expected as export strength led by semiconductors is spreading to non-IT exports and a recovery in domestic demand. It also predicted that rising inflationary pressure from the economic rebound will push the Bank of Korea to raise its benchmark rate faster than previously expected. 4%.
7%. 5% by the first quarter of 2027. The stronger-than-expected rebound in exports and domestic demand was behind the sharp upward revision.
Oh explained, "South Korea's economy grew faster than expected in the first half of this year, and the recovery is now spreading quickly from semiconductors to non-IT exports and consumption. " She said exports are especially driving the recovery. 5% in the January-July period from a year earlier.
7%. If the trend continues, annual exports could exceed $1 trillion this year, the firm said. Oh also said the domestic demand outlook has improved.
6%," she said. She added that better earnings at semiconductor companies are feeding into wage and household income growth, while government fiscal support and wealth effects from rising asset prices are helping consumption recover. The firm also expects inflationary pressure to intensify as the recovery accelerates.
4%. 6% in July, the highest level since December 2023. Even as supply-side price pressures such as global oil prices ease, prices continue to rise, led by services.
Morgan Stanley said this suggests demand-driven inflation pressure from wage and consumption growth is strengthening. As a result, the Bank of Korea is expected to speed up its rate hikes more than previously anticipated.
75% in July, I expect additional hikes in August and October. 5% by the end of the first quarter of next year, bringing forward the timing of the terminal rate by one quarter from the previous outlook.
Oh said, "As growth in 2026 and 2027 will remain well above the potential growth rate, underlying inflationary pressure will also strengthen faster than expected. " She added, "Accordingly, the Bank of Korea's tightening stance to respond to the economic recovery and rising inflation pressure could become stronger than initially expected.
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[email protected] Kim Hyun-jung Reporter