Seoul: The central bank has revised its economic growth forecast for South Korea, predicting a 2.6 percent expansion in 2026, driven by robust semiconductor exports amid a global tech cycle. This represents a significant improvement from the previous 2 percent forecast in February.

According to Yonhap News Agency, the Bank of Korea's (BOK) adjustment marks the largest upward revision since May 2021. For 2027, the growth forecast remains at 2.1 percent. South Korea's economy experienced a 1.7 percent growth in the first quarter, the sharpest in over five years, aligning with other institutional forecasts. The International Monetary Fund and Asian Development Bank have both projected a 1.9 percent growth for the year, while the Korea Development Institute raised its 2026 forecast to 2.5 percent.

The BOK also adjusted its inflation forecast to 2.7 percent from 2.2 percent, attributing the change to higher oil prices following the U.S.-Iran conflict. For 2027, inflation is expected at 2.3 percent. The bank emphasized that the revised growth outlook is underpinned by strong semiconductor exports and government fiscal measures mitigating the effects of Middle Eastern supply disruptions.

BOK Governor Shin Hyun-song highlighted the contribution of exports, government support, and stock market gains to the growth rate, while noting the negative impact of the U.S.-Iran war. He projected that an early resolution in the Middle East could lead to even higher growth.

The BOK's optimistic scenario suggests further gains in semiconductor exports could boost growth forecasts for 2026 and 2027. Conversely, a slowdown in AI investment could lower growth rates. Despite maintaining the key interest rate at 2.5 percent, the BOK hinted at a potential rate hike later in the year.