Key facts
- The Bank of Korea raised its 2026 economic growth forecast to 3.3%.
- The upward revision is attributed to strong semiconductor exports driven by AI investments.
- The central bank also increased its key interest rate by 25 basis points to 3%.
- Inflation is expected to remain above the target level for a considerable time.
- The domestic economy is forecast to continue robust growth, supported by exports and investment.
The Bank of Korea (BOK) has raised its economic growth forecast for South Korea to 3.3% for 2026, a significant increase from its previous projection of 2.6%. This upward revision is driven by strong semiconductor exports, bolstered by robust AI investments. In conjunction with the revised growth outlook, the BOK's Monetary Policy Board decided to raise the key interest rate by 25 basis points to 3%, citing the need to prevent inflationary pressures from becoming widespread and to address financial stability risks.
The central bank noted that the domestic economy is expected to maintain robust growth, supported by sustained strong exports and investment, alongside a strengthening recovery in consumption. However, inflation is projected to remain above the target level for a considerable time due to persistent cost pressures and gradually increasing demand-side pressures. Consumer price inflation stood at 2.8% in July, with core inflation at 2.6%.
Globally, the economy is anticipated to grow at a moderate pace, influenced by AI investments, though tensions in the Middle East and uncertainties surrounding US Federal Reserve policy persist. Financial markets have seen rising long-term government bond yields and a weakening US dollar amid concerns about fiscal soundness in major economies.