There is an outlook that Korea's economic growth rate this year will reach the government's target of 2%. That contrasts with downward revisions to the potential growth rate. The potential growth rate is the maximum growth a country can achieve by mobilizing all production factors without triggering inflation. It is also an indicator of the economy's fundamental strength.
On the 26th, global investment bank (IB) JP Morgan raised its growth forecast for Korea this year to 3% from 2.2%. Citi also increased its projection to 2.9% from 2.2%. That exceeds the government's annual GDP growth target of 2% released in Jan.
Global IBs are seen to have raised Korea's growth outlook because the first-quarter report card came in better than expected. On the 23rd, the Bank of Korea (BOK) said first-quarter GDP growth was 1.7%. That is twice the BOK's forecast (0.9%) presented in Feb. It is also the highest quarterly growth in 5 years and 6 months since the third quarter of 2020 (2.2%).
What lifted the GDP growth rate was the semiconductor supercycle (long boom). On the day the first-quarter GDP growth rate was released, Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol said at the task force (TF) meeting of ministers on special management of cost of living, "In addition to strong exports driven by the semiconductor boom, measures such as capital market revitalization and consumption support also contributed."
Meanwhile, the prevailing view is that the potential growth rate will decline. The Organisation for Economic Co-operation and Development (OECD) projected Korea's potential growth rate at 1.71% this year. It saw the figure falling to 1.57% next year. The Korea Development Institute (KDI) also lowered its estimate of Korea's potential growth rate to 1.6% this year from 1.8% last year. For the time being, actual growth will likely be high thanks to semiconductors, but the low potential growth rate suggests the economy could be shaken by external shocks.