The Bank of Korea (BOK) on the 28th raised this year's growth forecast in its "economic outlook" to 2.6% from 2%. It also increased next year's forecast to 2.1% from 1.8%. It said the prolonged semiconductor boom is expected to lead to exports and investment improving far more than initially anticipated.
The BOK's projection is higher than those of the Korea Development Institute (KDI·2.5%), the International Monetary Fund (IMF·1.9%), and the Organization for Economic Cooperation and Development (OECD·1.7%).
◇ "Semiconductor export strength offsets Middle East war shock"
The BOK cited three reasons for upgrading this year's growth: ▲ strong IT exports (+0.7 percentage point) ▲ a supplementary budget (+0.2 percentage point) ▲ a stock market boom (+0.1 percentage point). It said these three factors offset the decline in growth (-0.4 percentage point) from the shock of the Middle East war.
The BOK projected that real gross domestic product (GDP), which rose 1.7% in the first quarter from the previous quarter, will increase by 0.2% in the second quarter, 0.0% in the third quarter, and 0.4% in the fourth quarter. In particular, the BOK sharply raised its estimate for this year's current account surplus to $250 billion from $170 billion.
However, this outlook assumes easing tensions in the Strait of Hormuz caused by the Middle East war. The BOK expected that shipping through Hormuz will recover to around 60% of the level before the Middle East situation in the fourth quarter. In that case, it forecast that international oil prices, based on the average price of Brent crude, will rise to $103 in the second quarter, then fall to $95 in the second half, $83 in the first half of next year, and $77 in the second half.
Meanwhile, the global economic growth rate for this year was revised down to 2.9% from 3.1%. The United States was lowered to 2.1% from 2.3%, the European Union (EU) to 0.8% from 1.2%, and Japan to 0.5% from 0.6%. China was kept at 4.6%.
◇ Consumer price inflation seen at 2.7% this year, 2.3% next year
The BOK also expected inflation concerns to grow. It raised this year's consumer price inflation forecast to 2.7% from 2.2%. Next year's projection was lifted to 2.3% from 2.0%. "As the spillover effect of rising global oil prices expands and demand-side pressures from income growth gradually increase, the upward trend in prices will expand further," it said.
Bank of Korea (BOK) Governor Shin Hyun-song said at a press briefing after the rate decision, "Core inflation in April was 2.2%, but the living cost inflation rate was higher at 2.9%," adding, "Since living costs have the most direct impact on inflation expectations, we see continued upward pressure on prices." Core inflation excludes volatile energy and food prices. Living cost inflation consists of 144 essential items that people frequently purchase, including energy and food.