If the semiconductor boom and falling oil prices continue, next year's growth could reach 3.7%

The Bank of Korea (BOK) projected South Korea's economic growth at 3.3% for this year. That is 0.7 percentage points higher than its estimate three months ago. It also said the semiconductor export boom is likely to continue for some time, with next year's figure approaching 3.0%.
On the 27th, the BOK raised its growth forecast for this year to 3.3%. That is 0.7 percentage points higher than the 2.6% estimate it gave in May. Since first lifting the forecast from 1.6% to 1.8% last November, the central bank has raised it four times in a row. Compared with August last year, when it stood at 1.6%, the forecast is now 1.7 percentage points higher. The main driver was clearly the semiconductor cycle. Of the 0.7 percentage point upward revision, 0.35 percentage points came from the strong semiconductor market. Revisions to actual data contributed 0.2 percentage points, the three major mega-projects added 0.1 percentage point, and Middle East-related effects added another 0.1 percentage point. Stock market corrections and higher market interest rates shaved off 0.05 percentage point.
Quarterly forecasts also improved. The outlook for the third quarter and fourth quarter rose from 0.0% and 0.4% to 0.3% and 0.5%, respectively. A BOK official said, "Exports and investment in the Information Technology (IT) sector will continue to remain strong, and consumption is expected to maintain a solid recovery." The official added, "As disruptions to energy supply chains caused by the Middle East situation gradually ease, weakness in non-IT sectors is also expected to moderate."
The growth forecast for next year was also sharply raised to 2.9%. That is 1.1 percentage points higher than the February estimate of 1.8% and 0.8 percentage point above the May forecast of 2.1%. Concerns over investment in Artificial Intelligence (AI) and weaker earnings are also expected to ease to some extent.
The projected annual current account surplus of a record $450 billion also helped lift the growth outlook. That is 1.8 times the May forecast of $250 billion. Since the first half already recorded $191 billion, the second half would need to reach $259 billion. If realized, that would be 3.6 times last year's previous record of $123.1 billion.
The BOK also outlined an optimistic scenario for the economy ahead. It said that if semiconductor export volumes continue to rise by around 20% this year and in the mid-to-high teens next year, the current growth forecasts could be lifted by 0.2 percentage point and 0.6 percentage point, respectively. It also said that if geopolitical tensions in the Middle East ease and traffic through the Strait of Hormuz recovers, pushing global oil prices down sharply, the forecasts could be raised by another 0.1 percentage point and 0.2 percentage point.
If both scenarios materialize, growth for this year and next year could rise to 3.6% and 3.7%, up by 0.3 percentage point and 0.8 percentage point, respectively. Of course, the opposite could also happen. In that case, the forecasts would fall to 3.1% and 2.2%, with 0.2 percentage point and 0.7 percentage point cut from each.
[email protected] Kim Tae-il Reporter