Commerzbank reports that South Korea’s second-quarter GDP grew 0.6% quarter-on-quarter and 3.7% year-on-year, exceeding expectations. The basis for economic growth is forceful demand for semiconductors related to artificial intelligence and stable domestic spending. Good data support the prospects for another 25 basis point hike by Bank of Korea in August. USD/KRW fell to 1,475 and the won was supported by portfolio inflows into bonds and stocks.
The growth surprise strengthens the case for a BoK hike
“GDP growth in the second quarter increased by 0.6% qoq sa (Bloomberg consensus: 0.4%) compared to 1.8% in the first quarter. This suggests that growth momentum remained solid despite energy supply disruptions.”
“On an annual basis, the economy grew by 3.7% year-on-year (Bloomberg consensus: 3.5%), compared to 3.8% previously. The Ministry of Economy and Finance (MoF) recently increased its growth forecast for 2026 to 3.0% from 2.0%, reflecting improved export and investment prospects.”
“On the monetary policy front, the strong Q2 GDP reading supports the Bank of Korea’s (BoK) next rate hike of 25 basis points to 3.0% at its August 27 meeting. At the previous meeting, Governor Shin Hyun-sung described August as a ‘live’ meeting, reinforcing the BoK’s data-driven approach.”
“With economic growth remaining stable, inflation above target, and the AI-fueled export boom spreading to wages and domestic demand, policymakers have room to further normalize policy.”
“On the currency front, USD-KRW fell 0.2% to 1,475 yesterday. The pair initially fell 0.9% following the GDP release before paring some losses later in the session. Portfolio inflows provided support for the KRW, with foreign investors purchasing $1.0 billion of domestic bonds and $3.7 billion of equities so far this week.”
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