As a semiconductor supercycle centered on artificial intelligence (AI) data center investment is expected to continue through next year, the likelihood has grown that Korea's exports and gross domestic product (GDP) growth will strengthen. The market expects Korea's growth rate next year to be around 2%, and, accordingly, there is an assessment that the Bank of Korea's rate-cutting phase has effectively entered its final stage.
Economist Kwon Hyo-seong of Bloomberg Economics said in a report on the 6th, "Korea Insight: AI Semiconductor boom likely to drive growth and bring the BOK's rate cuts to an end," that "the semiconductor industry will contribute 0.5 percentage point (p) to this year's GDP growth rate and 0.7 p next year." This far exceeds last year's 0.2 p level. The growth rate next year was expected to surpass 2%.
Kwon cited the semiconductor industry's entry into a supercycle as the basis for this judgment. As semiconductor exports increased an average of 43% annually in 2017–2018 due to a surge in demand for smartphones and cryptocurrencies, this time a supercycle centered on AI chips is creating a similar upward trend, the analysis said. In fact, according to market consensus, semiconductor shipments by Samsung Electronics and SK hynix are expected to increase 25% this year and 45% next year.
Export indicators also show a clear recovery trend. According to the Ministry of Trade, Industry and Energy, semiconductor exports last month jumped 25.4% from a year earlier, rising for the eighth straight month. The export value was a record high for any October. As the recovery of semiconductors, which account for more than 20% of total exports, accelerated, total exports last month also set a new record high for the same month. There is also a growing possibility that this year's annual exports will surpass last year's ($683.8 billion) to hit an all-time record high.
As economic indicators improve thanks to strong semiconductors, the Bank of Korea's room to cut rates is narrowing. If the growth rate exceeds 2%, the GDP gap rate will narrow from -0.6% in 2025 to -0.2% in 2026. The GDP gap rate shows the difference between the economy's potential growth rate and its actual growth rate; the smaller the gap, the less need there is to lower rates to stimulate the economy.
On top of this, financial stability risks in the real estate market remain a burden. According to the Korea Real Estate Board (KREB), apartment prices in Seoul rose 0.19% in the first week of Nov. (as of the 3rd), slowing from the previous week's 0.23% but far outpacing the national average (0.07%). Growth in household loans is also expanding. According to the banking sector, the outstanding loan balance of household loans at the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — stood at 766 trillion 6,219 billion won at the end of last month, up 2 trillion 5,270 billion won from the end of the previous month (764 trillion 949 billion won).
Rising instability in the foreign exchange market is another variable. Around the U.S.-Korea tariff negotiations, the won-dollar exchange rate has been on the rise. After falling into the 1,350-won range in June, the won-dollar rate exceeded 1,400 won at the end of September and broke through 1,440 won in mid-October. It briefly fell right after the deal was reached, but as foreign investors' stock selling intensified, it broke through 1,450 won on the 7th.
Kwon said, "With the narrowing GDP gap reducing the need for additional policy support, and financial stability risks remaining due to overheating in the Seoul real estate market, the rate cut cycle will enter an ending phase," and predicted that the Bank of Korea (BOK) will make this official in February next year. He added, "At the Monetary Policy Committee meeting on the direction of currency policy in November, it will raise growth forecasts for this year and next year and revise the three-month rate guidance (a compilation of Monetary Policy Committee members' rate outlooks) to gradually shift the tone."
Researcher Cho Yong-gu of Shinyoung Securities also said, "BOK Governor Rhee Chang-yong has noted that if rates are not cut for more than a year, the rate cut cycle is considered over," adding, "Given that the last cut was in May, the semiconductor boom and real estate overheating make it likely there will be no additional cuts through May next year, ending the cut cycle." He added, "Any additional cut could come once in the second half of next year depending on economic conditions."