Semiconductor export boom lifts South Korea growth forecasts for 6th straight month

A booming semiconductor export market has pushed global investment banks to raise their South Korea growth forecasts for a sixth consecutive month, with at least one institution now projecting growth above 4 percent.

As of the end of September, the average real GDP growth forecast for South Korea this year from eight major investment banks stood at 3.5 percent, up 0.2 percentage points from the previous month's 3.3 percent, according to the Korea Center for International Finance. The banks have raised their growth outlooks every month since April, when the average stood at 2.4 percent.

All eight investment banks now expect South Korea's economy to grow at least 3 percent this year. The number of banks projecting growth in that range has risen steadily — from three at the end of June to six at the end of July and eight by the end of September.

JPMorgan led the upward revisions, raising its forecast by 0.2 percentage points from its end-of-August estimate of 3.8 percent to 4 percent — the only projection above 4 percent among the major banks. UBS lifted its forecast from 2.8 percent to 3.5 percent, Bank of America from 3.1 percent to 3.6 percent, and Citigroup from 3.7 percent to 3.8 percent.

The OECD also raised its growth forecast for South Korea last month, lifting its estimate by 1.1 percentage points to 3.7 percent.

Investment banks are also revising up their outlooks for next year, as the semiconductor export boom appears increasingly likely to extend into 2027.

Six of the eight banks raised their forecasts for next year's growth. The average projection for next year climbed to 2.8 percent, up 0.3 percentage points from the end of August's 2.5 percent, bringing it close to the Bank of Korea's own forecast of 2.9 percent.

Forecasts for South Korea's current account surplus as a share of GDP have also been revised upward repeatedly, as the surplus is expected to grow faster than nominal GDP. As of the end of last month, the eight banks' average forecast for this year's current account surplus as a share of GDP stood at 17.5 percent, up 1.5 percentage points from the previous month's 16 percent. Over the same period, the average forecast for next year's surplus ratio rose 2.4 percentage points, from 15 percent to 17.4 percent.

Meanwhile, Kim Min, a senior official at the Bank of Korea's International Finance Research Team, said in a report released Tuesday that South Korea's current account surplus could be assessed as "significantly exceeding" the appropriate level calculated by the IMF in next year's evaluation. The report examined how changes to the IMF's External Balance Assessment model would affect the evaluation of South Korea's current account.

The Bank of Korea said the EBA model has limitations in capturing South Korea's specific circumstances, including its rapidly aging population and the semiconductor boom. "We will explain to the IMF the unique characteristics of our situation, including uncertainty over whether the sharp rise in the current account surplus reflects a long-term structural trend or a cyclical factor," the central bank said.