The Bank of Korea has slightly raised its growth forecast for this year, citing the effects of the government’s extra fiscal stimulus, but warned that the recovery remains fragile after a sluggish start to 2025.
The central bank said on Thursday that it expects the South Korean economy, Asia’s fourth largest, to expand 0.9% this year, revising up its estimate of 0.8% in May. The BOK left its outlook for 2026 unchanged at 1.6%.
BOK officials said the upgrade reflects the impact of two supplementary budgets worth a combined 45.6 trillion won ($32.9 billion), much of which has been channeled into household support, including consumption vouchers of up to 520,000 won per person.
The fiscal boost has helped offset weakness at the start of the year, when gross domestic product (GDP) shrank 0.25% quarter on quarter in the first three months – the steepest contraction among OECD members.
(Graphics by Daeun Lee) GDP SHOWS SIGNS OF IMPROVEMENT FROM Q2
Growth staged a partial rebound in the second quarter, prompting the BOK to adjust its projections.
The Korean economy returned to a firmer footing in the April-June quarter, expanding 0.6% from the previous three months.
Thursday’s revision marks the BOK’s first upward adjustment this year, after a series of cuts.
In February, the central bank lowered its 2025 GDP growth forecast to 1.5% from 1.9% earlier, and again to 0.8% in May.
The new growth outlook brings the central bank in line with the Finance Ministry’s projection of 0.9% announced last week.
The latest BOK forecast remains below the OECD’s 1% projection, but above the 0.8% expected by the IMF, the Korea Development Institute (KDI) and the Asian Development Bank (ADB).
(Graphics by Daeun Lee) On inflation, the BOK lifted its consumer price growth forecast for this year to 2.0% from its earlier projection of 1.9%.
Next year’s inflation outlook was also nudged up 0.1 percentage point to 1.9%.
Earlier this month, Goldman Sachs said it expects the Korean economy to expand 1.2% this year, up 0.1 percentage point from its previous forecast.
JPMorgan, long one of the more bearish observers of the Korean economy, also nudged up its forecast to 0.7% from 0.6%, citing stronger-than-expected second-quarter growth.
Citi raised its forecast to 0.9% from 0.6%.
Bank of Korea Gov. Rhee Chang-yong speaks during a press conference after the central bank kepts its policy rate unchanged at 2.5% While the modest upgrade suggests stimulus measures are providing a foundation for growth, policymakers face pressure from both a sluggish global economy and lingering domestic headwinds.
Earlier on Thursday, the BOK kept its benchmark interest rate unchanged for the second consecutive session to ensure financial stability amid persistent concerns about rising housing prices and household debt.
In a widely expected decision, the central bank’s Monetary Policy Board held its base rate steady at 2.5% at its rate-review meeting.
BOK Gov. Rhee Chang-yong told a press briefing that five out of six board members supported the rate freeze decision, while the five voiced the need to keep open the possibility of further rate cuts over the next three months.
Write to In-Soo Nam at isnam@hankyung.com Jennifer Nicholson-Breen edited this article.
