Korea: Near-term growth momentum weakens: Despite the announcement of large-scale investment, K-shaped growth supports a gradual tightening path (a 25bp hike per quarter)

Research evidence excerpt

Korea: Near-term growth momentum weakens: Despite the announcement of large-scale investment, K-shaped growth supports a gradual tightening path (a 25bp hike per quarter)

Global Markets Research

1 July 2026Asia Insights

Economics - Asia ex-Japan

Research Analysts

Korea: Near-term growth momentum weakens Asia Economics

Jeong Woo Park - NSL

Despite the announcement of large-scale investment, K-shaped growth jeongwoo.park@nomura.com

supports a gradual tightening path (a 25bp hike per quarter) +65 6433 6197

• IP growth was far below market expectations, but close to our forecast, slowing

sharply to -3.0% m-o-m, sa (-0.9% y-o-y) in May from -0.9% (1.5%) in April

(Consensus: 0.5%; Nomura: -2.4%), mainly because of a sharp correction in

semiconductor production (-10% m-o-m; 8.0% y-o-y). Services output growth

rebounded on stronger financial activity and professional services. All industry

production fell by 0.3% m-o-m, sa (2.3% y-o-y) again in May, marking two consecutive

months of decline. Domestic demand improved only modestly: retail sales barely

rose, equipment investment has fallen for two consecutive months and construction

recovered from a weak base.

• Nomura-KRnow currently estimates Q2 GDP growth at -0.4% q-o-q sa (2.5% y-o-y),

a sharp slowdown from 1.8% in Q1. Lower oil prices, a possible recovery in consumer

sentiment and the government’s supplementary budget — including energy-related

support payments — should provide some near-term support. But the broader macro

structure remains K-shaped: the semiconductor cycle is strong, but the spillover to

households, SMEs and non-tech domestic demand remains limited. As a result, we

maintain our below-consensus 2026 GDP growth forecast of 2.4% y-o-y.

• The recently announced three mega projects (around KRW1,500tn; ~58% of