South Korea hikes growth forecast sharply as demand for AI booms

SOUTH Korea revised its economic growth forecast sharply higher as booming global demand for artificial intelligence (AI) drives its semiconductor exports to record levels.

The government sees gross domestic product expanding by 2.6 per cent this year, an upward revision from its previous forecast of 2.2 per cent, according to a statement on Wednesday (Jul 3) from the Finance Ministry. The inflation forecast has been kept unchanged at 2.6 per cent, matching an estimate by the Bank of Korea (BOK).

The government forecast for GDP is 0.1 percentage point higher than the one by the BOK, which also revised its projection in May after the economy expanded faster than expected in the first quarter. A jump in memory-chip sales by companies including SK Hynix propelled the economy to a 1.3 per cent expansion from a quarter earlier, far outpacing the 0.6 per cent consensus forecast of economists.

The pick-up in economic projections underscores optimism about an economy that has bounced back from last year’s slump in semiconductor demand even as interest rates have stayed elevated. The government said on Monday that South Korea exported the most semiconductors on record in June, driving the nation’s trade surplus to US$8 billion, the largest since 2020.

South Korea now expects its current account surplus to reach US$63 billion this year, up from US$50 billion forecast previously, the Finance Ministry said. That would be a jump from US$35.5 billion last year.

Meanwhile, the government remains concerned about a slow recovery in private consumption and persistent credit risks in the construction industry, the ministry statement said. While facilities investment will likely rebound in sectors related to exports, funding in construction is likely to stay weak, it said. BLOOMBERG