As it sharply revised this year's economic growth forecast up to 3.3% from 2.6%, the Bank of Korea (BOK) also raised its expected current account surplus to $450 billion from $250 billion. By contrast, it revised down the projected increase in the number of employed people to 140,000 from 180,000. Following the government, the BOK also expects growth without jobs this year.
◇ "Semiconductor export volume growth rate was 16% last year, seen in the high 10% range again this year"
In its revised economic outlook released that day, the Bank of Korea (BOK) raised this year's growth forecast by as much as 0.7 percentage points in just three months. It said, "The favorable semiconductor cycle contributed to lifting the forecast by 0.35 percentage points, accelerated investment including the three mega projects added 0.1 percentage point, and a smaller-than-expected impact from the Middle East war also contributed 0.1 percentage point to the upward revision."
The Bank of Korea (BOK) projected that quarter-on-quarter real gross domestic product (GDP) growth would come in at 1.8% in the first quarter and 0.6% in the second quarter, followed by 0.3% in the third quarter and 0.5% in the fourth quarter. It also sharply raised next year's growth forecast to 2.9% from 2.1%. The BOK said, "As the semiconductor upcycle continues and its spillover effects take hold, both domestic demand and exports will show a solid trend."
The Bank of Korea (BOK) expected the semiconductor export volume growth rate to come in in the high 10% range this year, following 16% last year. In the May economic outlook it had seen it "at last year's level," but the view has turned relatively more optimistic. For next year, it saw growth in the low-to-mid 10% range. This, too, is an improvement from the initial outlook (around 10%).
The Bank of Korea (BOK) said, "As global artificial intelligence (AI) investment expands, semiconductor demand is rising rapidly, while capacity expansion is proceeding gradually, sustaining excess demand for semiconductors and leading to the signing of long-term supply contracts with major customers."
Accordingly, it raised the current account surplus forecast for this year to $450 billion, an "all-time high," from $250 billion, and for next year to $430 billion from $190 billion. Last year's current account surplus was $123.1 billion, and it projected that this year's would increase to nearly four times that.
The Bank of Korea (BOK) said if semiconductor exports increase by more than expected, growth could rise to as high as 3.5% this year and next. It said inflation would remain at 2.7% this year, but could rise by 0.2 percentage points to 2.5% next year. Conversely, if semiconductor exports underperform expectations, it assessed that growth would be 3.2% this year and 2.5% next year. It said the inflation rate could fall by 0.1 percentage point next year to 2.2%.
◇ "Semiconductor boom to spur consumption and investment, but job conditions remain weak"
The Bank of Korea (BOK) expected the semiconductor boom to drive increases in consumption and investment. It revised the private consumption growth rate up to 2.1% from 2% for this year, and to 2.3% from 2.1% for next year. It raised facility investment to 6.8% from 4.4% for this year, and to 4.7% from 2.7% for next year.
Meanwhile, it kept the consumer price inflation outlook unchanged at 2.7% for this year and 2.3% for next year. This reflects a downward revision to the crude oil price outlook, to $86 per barrel from $93 for this year, and to $74 from $80 for next year. It assessed that as countries diversify oil import sources and non-Middle Eastern countries expand crude supply, supply chain disruptions will ease.
By contrast, it assessed that the semiconductor boom will not improve job conditions. It lowered this year's forecast for the increase in the number of employed people to 140,000 from 180,000. The Bank of Korea (BOK) said, "With the effects of the Middle East war persisting and weak employment in vulnerable sectors such as construction, the improvement in private-sector employment is slower than expected." It added, "Risks include the progress of rehabilitation proceedings at some retailers such as Homeplus Co., and the extent of employment recovery in vulnerable sectors."