[Monetary Policy Board Poll] ② Semiconductors Pull, Domestic Demand Pushes... 79% of Experts Say "Growth Will Exceed 2% This Year"

The Asia Business Daily surveys 15 domestic and overseas economic experts
Korea's growth rate most commonly seen at 2.0% this year... Some see it at 2.3%
Majority expect stronger growth in H1 and weaker in H2
All respondents say "The Bank of Korea will raise this year's growth forecast"

Exchange rate and real estate seen as key drivers of rate decisions
Whether rates rise depends on inflation

With the Bank of Korea’s base rate decision and economic outlook announcement scheduled for the 26th, a clear majority of domestic experts expect Korea’s economic growth rate to exceed 2.0% this year. They forecast that, in addition to robust exports led by semiconductors, domestic demand will also recover gradually, driven by government investment and private consumption. Most experts have revised their forecasts upward, and they expect the Bank of Korea to also raise its growth forecast in this outlook. The prevailing view is that the exchange rate and real estate will be the key factors steering the Bank of Korea’s monetary policy, while the timing of any base rate hike will be determined by inflation.

Most forecasts put this year's growth at 2.0%... Experts in unison: "The Bank of Korea will also raise its outlook"

According to a survey conducted by The Asia Business Daily from the 12th to the 19th on 15 economic experts at domestic and overseas economic research institutes, securities firms, and banks, 79% of respondents (11 people, with 1 non-response) projected that Korea’s economic growth rate this year will exceed 2.0%. Specifically, 2.0% was the single most common forecast with 6 respondents, followed by 2.2% and 2.3% with 2 respondents each. One respondent forecast 2.1%. Only one expert projected 1.8%, in line with the Bank of Korea’s forecast published in November last year. The remaining 2 respondents expected 1.9%.

Among the 11 experts who also took part in the January survey, 7 revised their growth forecasts upward in this latest outlook. They expect growth to come in higher than initially projected, citing an extended upcycle in semiconductors, a gradual recovery in consumption, and a partial rebound in construction investment, which had previously dragged down the growth rate.

Baek Yoonmin, researcher at Kyobo Securities, who raised his forecast from 1.8% to 2.2%, explained, “This year, Korea’s economic growth rate will show a recovery from last year as exports expand significantly, centered on semiconductors,” adding, “The consumption recovery is continuing at a moderate pace, and construction investment, which led the decline in last year’s growth rate, is also expected to improve slightly.”

On this basis, experts also expect the Bank of Korea to raise its growth forecast for this year in the upcoming economic outlook. All 14 experts who responded on this point projected that the Bank of Korea will revise its growth forecast up to between 1.9% and 2.0%. Jung Sungtae, researcher at Samsung Securities, said, “They will revise and reflect the fact that the export forecast for this year in the previous outlook was set too low.”

"Base effect from last year"… Growth expected to be stronger in H1 and weaker in H2, with 2.1% inflation the most common forecast

Experts expect this year’s growth to follow a pattern of being stronger in the first half and weaker in the second half. More specifically, among 8 respondents, the most common forecasts were 2.2% for the first half (3 respondents) and 1.6% for the second half (3 respondents). This reflects both the base effect from last year’s low growth in the first half and the fact that government spending will be concentrated early in the year.

Ahn Jaekyun, researcher at Korea Investment & Securities, said, “In the first half, concentrated government spending and improving consumption will lead to stronger growth compared with the second half.” Han Junhee, senior researcher at the NH Financial Research Institute, commented, “The difference between the first- and second-half figures is driven more by statistical factors stemming from the base effect than by an abrupt economic slowdown,” and forecast that “on a quarterly basis, a gradual recovery trend will continue.” Min Hyunha, researcher at the Hana Institute of Finance, likewise predicted, “Although the base effect from last year will produce a pattern of stronger growth in the first half and weaker in the second, it does not mean that growth momentum will weaken in the second half.”

By contrast, some expect that the growth engine led by semiconductors may lose some steam in the second half. Ahn Yeha, researcher at Kiwoom Securities, said, “During the first half, exports centered on semiconductors will continue to grow and maintain strong momentum, but in the second half, growth is expected to slow slightly due to factors such as falling semiconductor prices.”

As for consumer price inflation, 5 experts (with 2 non-responses) forecast 2.1%, the same as the Bank of Korea’s projection, making it the most common view. A forecast of 2.0% followed with 4 respondents, and 2.2% with 2 respondents. The lowest forecast was 1.9% (1 respondent) and the highest was 2.3% (1 respondent. Overall, most experts expect inflation to be managed stably around the Bank of Korea’s target level. Yoon Yusam, researcher at Meritz Securities, said, “Despite exchange rate volatility, inflation is expected to remain in the low 2% range thanks to stable energy prices and the government’s price stabilization measures.”

Key variables for rate decisions remain the exchange rate and real estate... "Inflation and semiconductors will drive rate changes"

With the Bank of Korea’s Monetary Policy Board widely expected to keep the base rate on hold this month, experts still see the exchange rate and real estate as the biggest variables for rate decisions. Of the 15 respondents, 9 (multiple responses allowed) cited the exchange rate. Han Junhee, senior researcher, said, “The exchange rate is a key variable that simultaneously affects both inflation and growth,” adding, “If volatility increases, it can directly weigh on the inflation stabilization path and financial market stability.” Kang Seungwon, researcher at NH Investment & Securities, pointed out, “For the time being, the exchange rate is the core task for policymakers.”

“Real estate and housing prices” followed with 7 responses. Kim Jinill, professor of economics at Korea University, said, “Both exchange rate and real estate risks are important factors in rate decisions,” and added, “The narrative at the time the base rate is decided will matter for which variable carries more weight.” Park Sanghyun, researcher at iM Securities, also projected, “As the economic recovery strengthens, the impact of the business cycle on interest rates is likely to weaken,” and added, “From the perspective of financial stability, there is a high likelihood that rate policy will focus on stabilizing housing prices and the exchange rate.” This places greater weight on the possibility that the rate freeze stance will continue unless the exchange rate and housing prices are brought under control.

While most experts expect a prolonged rate freeze, some also see semiconductor conditions and inflation as the factors that will drive any rate changes. Researcher Ahn Yeha said, “If consumer price inflation accelerates sharply, the timing of rate hikes could be brought forward.” Researcher Ahn Jaekyun likewise noted, “The key issue is the inflation trend,” and predicted, “If upside pressure on prices increases, the likelihood of a shift toward rate hikes will also grow stronger.” Jo Yonggu, researcher at Shin Young Securities, pointed out, “In the medium term, the levels of economic activity and inflation will be crucial for any shift toward rate increases.”

There is also an assessment that the semiconductor cycle, which is driving growth, could determine the course of monetary policy. Researcher Min Hyunha said, “Given that the main drivers of Korea’s current economic recovery are exports and investment stemming from the AI-driven semiconductor boom, this year’s outlook will be particularly sensitive to whether the semiconductor upcycle continues,” adding, “The direction of the semiconductor cycle and the resulting strength of the growth recovery will be important factors in rate decisions.”

Some also argue that “K-shaped” economic growth and the recent widening gap with market interest rates are constraining the conduct of monetary policy. Kang Minjoo, chief economist at ING Bank, said, “If growth proceeds in a K-shaped pattern this year, the Bank of Korea will face significant challenges in conducting monetary policy,” but added, “Rather than changing the base rate itself, it is more likely to enhance policy effectiveness by using micro-level monetary policy tools such as the Bank Intermediated Lending Support Facility.” Researcher Han Junhee noted, “Recently, long-term government bond yields and corporate bond yields have remained high, widening their gap with the policy rate,” and warned, “If this gap widens excessively, it could weaken the consistency of monetary policy signals and weigh on policy credibility.”

Experts who participated in the survey (in Korean alphabetical order)

Kang Minjoo, chief economist at ING Bank; Kang Seungwon, researcher at NH Investment & Securities; Kim Seongsu, researcher at Hanwha Investment & Securities; Kim Jinill, professor of economics at Korea University; Moon Hongcheol, researcher at DB Financial Investment; Min Hyunha, researcher at the Hana Institute of Finance; Park Sanghyun, researcher at iM Securities; Baek Yoonmin, researcher at Kyobo Securities; Ahn Yeha, researcher at Kiwoom Securities; Ahn Jaekyun, researcher at Korea Investment & Securities; Yoon Yusam, researcher at Meritz Securities; Jung Sungtae, researcher at Samsung Securities; Jo Yonggu, researcher at Shin Young Securities; Han Junhee, senior researcher at the NH Financial Research Institute; Heo Munjong, head of the Woori Finance Research Institute.