Strong semiconductor exports push foreign banks to raise Korea growth forecast to 3.7%

Buoyed by strong semiconductor exports, major foreign investment banks have raised their growth forecast for the South Korean economy this year to 3.7%, marking the seventh consecutive month of upward revisions after third-quarter growth far exceeded market expectations.

According to the International Finance Center on Thursday, the average real GDP growth forecast for South Korea this year among eight major investment banks stood at 3.7% as of late October, up 0.2 percentage points from 3.5% a month earlier. The outlook has climbed every month since April, when it stood at 2.4%.

Barclays raised its forecast from 3.2% to 3.8%, and Goldman Sachs lifted its projection from 3.2% to 3.7%. Nomura also revised its estimate upward, from 3.2% to 3.6%. JPMorgan, however, trimmed its forecast by 0.1 percentage point, from 4.0% to 3.9%.

The revisions reflect the Bank of Korea's flash estimate, released Oct. 27, showing that real GDP grew 1.0% quarter-on-quarter in the third quarter — well above the market consensus of 0.3%.

The stronger-than-expected third-quarter result is estimated to add 0.35 percentage points to the full-year growth rate. Even if fourth-quarter growth comes in flat on a quarter-on-quarter basis, the annual growth rate for this year would still reach 3.6%.

The investment banks also raised their forecast for South Korea's current account surplus as a share of nominal GDP, putting it at 19.4% — up 1.9 percentage points from a month ago.

The gap with Taiwan's current account surplus ratio is also narrowing. Taiwan's forecast for this year stands at 21.0%, leaving a gap of 1.6 percentage points with South Korea. That gap had been 10.5 percentage points based on end-of-last-year forecasts and had already narrowed to 3.4 percentage points in August.

The eight banks' average growth forecast for South Korea next year came in at 2.9%, up 0.1 percentage point from a month earlier. Their forecast for next year's current account surplus as a share of GDP also rose 2.1 percentage points to 19.5%.