The Bank of Korea has published its latest assessment of recent economic developments, projecting faster growth in Korea this year as the semiconductor upcycle and related spillovers support activity. At the same time, it expects consumer price inflation to remain elevated as stronger demand adds pressure and earlier cost shocks continue to feed through to prices. The central risks to the outlook are geopolitical developments in the Middle East and the sustainability of global artificial intelligence investment. Second-quarter gross domestic product growth is expected to have exceeded the previous 0.2% quarter-on-quarter projection, as policy measures including the supplementary budget largely cushioned the supply shock linked to the Middle East and exports remained solid. From the second half, stronger income conditions and expanding investment, including the three mega-projects, are expected to support domestic demand, while the semiconductor upcycle is also expected to keep exports firm into 2027. On prices, CPI inflation rose to 3.0% year on year in the second quarter from 2.1% in the first quarter, while core inflation increased to 2.4% from 2.2%, driven by higher petroleum prices, the elevated exchange rate, travel-related services and durable goods. The Bank of Korea also expects a record current account surplus this year on strong semiconductor and computer SSD exports, while employment growth is projected to fall short of last year's increase of 190,000 even as the employment rate rises above 62.9%.

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