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Korean GDP growth forecasts rise to 3 percent, but BOK more likely to hike rates

Published: 04 May. 2026, 18:09 Updated: 04 May. 2026, 19:29

Shipping containers at a dock in Busan on March 31 [NEWS1]

Korea's real GDP is expected to grow by as much as 3 percent this year after strong exports in the first quarter, according to global investment banks.

JP Morgan recently raised its 2026 growth projection for the Korean economy to 3.0 percent from 2.2 percent, while Citigroup now expects 2.9 percent. Capital Economics and BNP Paribas have also revised their forecasts up to 2.7 percent, reflecting a rebound driven largely by semiconductor exports.

The revised forecasts come as real GDP grew 1.7 percent in the first quarter — the fastest pace since the third quarter of 2020 — with exports leading the expansion and both facility and construction investment returning to growth.

A rebound in semiconductors has helped lift both overall exports and consumer sentiment, easing concerns about a broader slowdown.

Domestic institutions have also upgraded their outlooks. The Hyundai Research Institute raised its growth forecast to 2.7 percent, citing a projected trade surplus of $152.2 billion, while the Export-Import Bank of Korea expects exports to rise about 30 percent on year in the second quarter.

However, the stronger outlook weakens the case for monetary easing. As concerns about an economic slowdown fade, the rationale for cutting rates has diminished, while inflationary pressure — fueled in part by higher global energy prices — remains elevated.

A senior Bank of Korea official on Sunday issued a rare signal that the central bank may need to tighten monetary policy in light of revised growth forecasts.

“It is time to think about pausing rate cuts and potentially raising rates,” said Bank of Korea Senior Deputy Gov. Ryoo Sang-dai in comments to reporters in Samarkand, Uzbekistan, where he attended the 29th meeting of finance ministers and central bank officials from Korea, China, Japan and the Association of Southeast Asian Nations.

Bank of Korea Senior Deputy Governor Ryoo Sang-dai attends the 29th Asean+3 Finance Ministers and Central Bank Governors’ Meeting in Samarkand, Uzbekistan, on May 3. [BANK OF KOREA]

Asked whether the Monetary Policy Board meeting on May 28 could signal a rate hike, he said “the possibility remains open,” but added that “given the high level of uncertainty, we will monitor conditions more closely through the end of May before making a policy decision.”

Officials at the central bank rarely speak publicly about the possibility of rate increases before they are decided. The Bank of Korea has held its benchmark interest rate steady at 2.50 percent for seven consecutive meetings since May last year.

Ryoo pointed to the economy’s resilience as a key factor behind the shift in tone.

“Growth does not appear likely to fall far below the previously expected 2.0 percent, while inflation is increasingly likely to exceed the 2.2 percent recorded in March,” he said.

Major investment banks have already begun revising their inflation forecasts upward, with JPMorgan raising its projection for consumer price growth this year to 2.7 percent. DBS Bank and Bank of America Merrill Lynch have also lifted their forecasts to 2.6 percent and 2.9 percent, respectively.

Analysts told the JoongAng Ilbo they already anticipate higher rates.

“Implied short-term rates embedded in three-year government bond yields suggest expectations of roughly one to two rate hikes,” said Ahn Jae-kyun, an analyst at Korea Investment & Securities.

Global monetary policy trends are also adding to upward pressure. Major central banks — including the U.S. Federal Reserve, European Central Bank and Bank of Japan — held rates steady last month, but analysts interpret the stance as a “hawkish pause” aimed at guarding against a resurgence in inflation.

“If there are no meaningful changes in supply-side conditions, the European Central Bank is increasingly likely to shift toward a rate hike in June,” said Yang Ji-sung, an analyst at Samsung Securities.

Some economists expect the Korean central bank to begin raising rates as early as the third quarter, with the possibility of two hikes totaling 0.5 percentage points this year.

“The Bank of Korea is likely to begin raising its benchmark interest rate from the third quarter (August), with the possibility of two hikes totaling 0.5 percentage points within the year,” said Cho Yong-gu, an analyst at Shinyoung Securities.

Others, including JPMorgan, forecast a more gradual path, with increases extending into next year.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM WON [[email protected]]