Seoul: The Bank of Korea (BOK) on Thursday increased its economic growth forecast for South Korea to 3.3 percent for 2026, attributing the uptick to robust semiconductor exports supported by a consistent demand for artificial intelligence (AI) infrastructure. This revision marks a 0.7 percentage-point rise from the BOK's prior forecast of 2.6 percent released in May.

According to Yonhap News Agency, the central bank has adjusted its 2026 growth forecast upwards twice since initially projecting a 2 percent growth in February. This latest announcement reflects the highest growth forecast from the central bank since 2021, when it anticipated a 4.7 percent expansion. The BOK's current estimate surpasses the South Korean government's growth outlook of 3 percent published last month.

In line with this trend, global investment banks have also revised their growth forecasts for South Korea to 3 percent or higher, with Moody's projecting 3.5 percent and Morgan Stanley estimating 3.4 percent. For 2027, the central bank anticipates a growth rate of 2.9 percent, up from 2.1 percent in May.

The South Korean economy recorded a 1.8 percent growth in the first quarter compared to the previous quarter, marking the strongest quarterly growth since the third quarter of 2020, when the economy expanded by 2.2 percent. In the second quarter, the economy of Asia's fourth-largest nation grew by 0.6 percent, significantly exceeding the BOK's May forecast of 0.2 percent growth.

The BOK remains optimistic about the semiconductor cycle moving forward, despite expectations for a slight slowdown in production growth due to limited capacity. The bank predicts that domestic demand and exports will exhibit solid growth next year as the semiconductor upcycle continues, with gains extending into the broader economy.

In a pessimistic scenario involving reduced AI investment, the South Korean economy could experience a 0.1 percentage-point decline in growth in 2026 and a 0.04 percentage-point decline in 2027. Meanwhile, the BOK has maintained its earlier forecast for consumer price inflation at 2.7 percent for 2026 and 2.3 percent for 2027. Core inflation, excluding volatile food and energy prices, is expected to rise to 2.5 percent this year, up from the previous forecast of 2.4 percent, due to ongoing tensions in the Middle East.

Governor Shin Hyun-song highlighted during a press conference that core inflation is anticipated to accelerate as demand-driven inflation pressure increases amid sustained cost-push inflation.