South Korea's central bank raised its economic growth forecast for this year to 3.3% on Thursday, driven by strong semiconductor exports fueled by robust demand for artificial intelligence infrastructure. The revised figure marks a 0.7 percentage point upgrade from the 2.6% projection issued in May.
This marks the second upward revision to the 2026 growth outlook since the central bank initially forecast 2% in February. The latest projection is also the highest the bank has published since 2021, when it predicted 4.7% growth. The central bank's estimate exceeds the 3% growth forecast unveiled by the government last month.
Recently, most international investment banks have upgraded their growth projections for South Korea to 3% or higher, with Moody's at 3.5% and Morgan Stanley at 3.4%. For 2027, the central bank lifted its growth estimate to 2.9%, up from the previous 2.1% forecast in May.
The economy, Asia's fourth-largest, expanded 1.8% quarter-on-quarter in the first quarter, marking the strongest quarterly performance since the third quarter of 2020, when growth hit 2.2%. In the second quarter, the economy grew 0.6% quarter-on-quarter, significantly surpassing the central bank's May projection of 0.2%.
The central bank holds an optimistic view on the semiconductor cycle for next year, though it expects production growth to slow modestly due to capacity constraints. "As the semiconductor upcycle continues and related benefits spill over to the broader economy, domestic demand and exports are expected to see steady growth next year," the bank said.
In a worst-case scenario where AI investment falls short of expectations, South Korea's 2026 growth would decline by 0.1 percentage points, with 2027 growth easing by 0.04 percentage points. Meanwhile, the central bank held its inflation projections steady, keeping consumer price inflation at 2.7% for 2026 and 2.3% for 2027.
Core inflation, which excludes volatile food and energy prices, is now projected at 2.5% this year, up from the previous 2.4% estimate, amid ongoing tensions in the Middle East. Central bank Governor Rhee Chang-yong told a press conference: "Cost-push inflation persists while demand-side inflationary pressures are rising, and core inflation is expected to trend higher."
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