The Bank of Korea is expected to raise its forecast for real gross domestic product growth this year to 1.9 to 2.0 percent from the previous 1.8 percent in its revised economic outlook on Feb. 26.

Analysts say upside factors for growth include a strong semiconductor cycle, improving exports, a recovery in domestic demand and wealth effects from rising share prices.

Analysts were somewhat divided on how a U.S. Supreme Court ruling voiding reciprocal tariffs and U.S. President Donald Trump’s warning of a new 10 percent tariff would affect South Korea’s growth.

Expectations are broadly that downside risks to growth will ease as tariff uncertainty clears, but concerns have also been raised about pressure for higher U.S. interest rates, drawing attention to the central bank’s assessment.

Despite the burden of a weak won, signs of rising international oil prices and pressure from domestic demand, the inflation forecast for this year is expected to change little.

◆ Analysts expect at least a 1.9 percent growth outlook for this year

A Yonhap News Agency survey of six economists on Feb. 22 showed most expect the central bank to raise its growth forecast for this year to 1.9 percent or 2.0 percent from 1.8 percent.

They cited rising exports and improving domestic demand as key reasons.

Park Jung-woo (박정우), an economist at Nomura Securities, said the central bank would raise its growth forecasts for this year and next year by 0.1 percentage point each, presenting 1.9 percent and 2.0 percent.

He pointed to a growing likelihood that a stronger-than-expected semiconductor cycle will persist, boosting exports and facility investment.

Ahn Jae-kyun (안재균), a researcher at Korea Investment & Securities, also said he expects an upward revision to 1.9 to 2.0 percent this year and 2.0 percent next year, citing stronger-than-expected growth in semiconductor exports and room for improvement in facility investment.

Ahn Ye-ha (안예하), a senior researcher at Kiwoom Securities, expected the central bank to raise its growth forecast for this year to 2.0 percent due to improved exports led by semiconductors and a recovery in domestic demand.

Joo Won (주원), head of the economics research office at Hyundai Research Institute, said he expects 1.9 percent growth this year.

Some analysts also focused on the impact of so-called wealth effects from strength in the domestic stock market, where higher asset prices lead to more consumption.

Cho Young-moo (조영무), head of NH Financial Research Institute, said NH sees growth this year at around 1.9 to 2.0 percent. He said semiconductors would be a positive factor for exports, and although consumption conditions are not very good, rising share prices would support consumption through wealth and income effects.

He added that increased fiscal spending as the government discusses a supplementary budget would also be a positive factor, while construction investment is an area that is not as good as expected.

Kim Hyun-tae (김현태), a researcher at the Korea Institute of Finance, also said there is a possibility the central bank would slightly raise its forecast to 1.9 to 2.0 percent, taking into account wealth effects from a recent stock market boom and improved consumer sentiment.

The Monetary Policy Board already said in its policy statement on Jan. 15 that growth this year was expected to broadly match the November forecast of 1.8 percent, but judged that upside risks had increased somewhat due to an expanding upturn in the semiconductor cycle and better-than-expected growth in major economies.

If the central bank raises its forecast to 1.9 percent, it would match the 1.9 percent forecasts presented by the Korea Development Institute and the International Monetary Fund. If it raises it further to 2.0 percent, it would match the government forecast of 2.0 percent.

That would still be lower than the 2.2 percent forecast presented by the OECD and the 2.1 percent average forecast at the end of last month by eight major investment banks.

◆ 'U.S. tariff shock likely to diminish... AI investment more important variable'

The central bank is in a situation where it has been forced to adjust scenarios due to changes in U.S. reciprocal tariff policy with its first economic outlook of the year just five days away.

Analysts expect a U.S. Supreme Court ruling and the Trump administration’s new tariff move will not immediately be a factor for the central bank’s revision to this year’s growth outlook.

Many viewed the easing of tariff uncertainty positively. Some also urged caution, saying the situation should be watched a bit longer.

Park said the overall tariff shock would decrease as tariffs on exports to the United States fall from 15 percent to 10 percent and auto item tariffs are expected to be excluded.

He said there was not much reason to directly raise the growth forecast, but he expected it would add weight to a more optimistic outlook going forward by easing downside risks.

Joo also said that the reciprocal tariff being lowered to 10 percent is ultimately a plus factor for exports, and that U.S.-bound investment linked to a package deal does not need to be executed immediately, which should also be seen as a positive factor.

Another view was that risks run both ways.

Ahn Jae-kyun said if tariffs are abolished, downside risks to growth could fall as global trade disputes ease, and in a positive interpretation, the exchange rate could stabilise as South Korea would not need to carry out investment in the United States.

He added that if pressure grows to refund U.S. tariff revenues estimated to exceed $150 billion, U.S. fiscal conditions could worsen and increased Treasury issuance could raise pressure for higher interest rates.

Many analysts also cited factors such as whether the semiconductor cycle continues and whether domestic investment rises as more important variables than U.S. tariffs.

Kim Hyun-tae said the most concerning issue is whether variables emerge in the boom in artificial intelligence investment and the trend of expanding investment cools. He said the growth rate could also be affected if the recovery in the construction sector is slower than expected or if government consumption increases only slightly more than expected.

Ahn Ye-ha said a key variable is how much growth appears in investment sectors such as facility investment under an expansionary fiscal stance.

The inflation forecast for this year is expected to remain around 2.1 percent.

Cho said the exchange rate remains high and oil prices are uncertain due to geopolitical instability including Iran, making it difficult for inflation to settle at 2 percent. He added that inflation is expected to show a declining trend over the medium and long term, and the central bank may keep its forecast for this year.

Ahn Jae-kyun said that even if prices for key raw materials including oil rise, there is room for an offsetting effect from government efforts to stabilise prices. He said that while exchange-rate uncertainty remains, with recent signs of stabilisation it would likely be limited to mentioning upside inflation risks.

[Yonhap News Agency]