South Korea’s economy received another boost after data released on July 1 showed exports reached a record high in June, strengthening expectations that the country could post its fastest annual growth in years as global demand for artificial intelligence-related semiconductors continues to surge.
A growing number of domestic and international forecasters now expect South Korea’s economy to expand well above the Bank of Korea’s official projection of 2.6% in 2025. Some analysts have raised their forecasts to around 4%, citing stronger exports, rising investment and additional fiscal support.
London-based Capital Economics recently increased its forecast for South Korea’s real gross domestic product (GDP) growth to 4.0%, following successive upward revisions from 1.0% in February, 1.6% in March and 2.7% in April.
“The Korean economy is riding a powerful wave of AI-related export demand,” the firm said, explaining the latest revision.
Korean Re offered the most optimistic forecast among surveyed institutions, projecting 4.1% growth this year.
Among 42 institutions tracked by Bloomberg, 11 now forecast annual GDP growth above 3%. JPMorgan expects growth of 3.7%, while National Australia Bank, ANZ and iM Securities project 3.6%. Bloomberg Economics and Citigroup forecast 3.5%, followed by Bank of America and ANZ Group at 3.1%. ING Financial Markets and Germany’s DekaBank each estimate growth at 3.0%.
Citigroup this week raised its forecast from 3.1% to 3.5%, citing stronger-than-expected economic data in April and May, expanding technology infrastructure investment and the possibility of an additional fiscal package worth more than $18 billion before early September.
The Woori Financial Research Institute also revised its outlook sharply higher, raising its forecast to 3.0% from 2.0%. The institute said stronger exports, business investment and government spending are likely to offset the economic impact of higher oil prices stemming from tensions in the Middle East.
The Bank of Korea is widely expected to revise its official forecast higher when it releases updated economic projections in August. First-quarter GDP growth was revised up to 1.8% from the preliminary estimate, strengthening the case for an upward adjustment to the central bank’s annual outlook.
Bank of Korea Governor Rhee Chang-yong said on June 19 that the current 2.6% growth forecast would likely be revised upward, reflecting stronger-than-expected economic performance during the first half of the year.
Trade data released on July 1 underscored that momentum.
The Ministry of Trade, Industry and Energy said June exports rose 70.9% from a year earlier to a record $102.3 billion, marking the first time South Korea’s monthly exports have exceeded $100 billion.
Semiconductors accounted for 43.8% of total exports, highlighting the industry’s dominant role in the country’s economic expansion.
Economists said stronger exports should continue to support economic growth by boosting corporate earnings, investment and national income.
Kim Mi-ru, head of macroeconomic and financial policy at the Korea Development Institute, said first-quarter data showed not only stronger real GDP growth but also a sharp improvement in the country’s terms of trade, leading to solid gains in real gross domestic income.
“The favorable trend appears to have continued, which is fundamentally positive for the broader economy,” Kim said.
Still, economists cautioned that the headline export figures may exaggerate the economy’s underlying strength.
Although export values surged, export volumes declined 3.3% from a year earlier, extending a three-month streak of contraction. Because real GDP measures output in volume rather than price, weaker shipment volumes suggest that recent gains have been driven in part by higher semiconductor prices rather than broader production growth.
A government official said record export values were encouraging but added that shipment volumes would ultimately determine whether the current momentum proves sustainable.
Analysts also warned against relying too heavily on a single industry.
Kim said the economy’s increasing dependence on semiconductors reflected a growing industrial concentration and argued that policymakers should focus on raising productivity across other sectors.
Joo Won, head of research at the Hyundai Research Institute, said export volumes remained negative throughout the April-to-June period despite rising export values. He said strengthening domestic demand would be critical if semiconductor prices or global demand begin to weaken.
