South Korea Economics: Strong 2026 GDP/GDI Likely to Lead to August Hike; Expect 20% 2026E Nominal GDP Growth

Research evidence excerpt

South Korea Economics: Strong 2026 GDP/GDI Likely to Lead to August Hike; Expect 20% 2026E Nominal GDP Growth

South Korea Economics

23 July 2026 Citi Research

For 1Q27E-2Q27E, we see even stronger real GDP growth trends (average 0.9%QoQ), driven by three factors: (1) the

semiconductor sector’s large bonus payment, likely at around 2% of GDP by early February, (2) the semiconductor sector’s

large corporate tax-fueled 2027 budget’s strong fiscal spending, and (3) tech CAPEX.

We raise our 2026E nominal GDP growth to 20.7% (vs. previous: 15.5%), which would be the strongest since 1991. Growth

of semiconductor exports price are likely to continue in 2H26. Citi's equity research team recently raised its 2026E global

DRAM/NAND ASP growth estimates to 234%/236%YoY due to a server DRAM price rally (note). Historically, strong

semiconductor exports price substantially raised the trends of GDI (via terms of trade), GDP deflater, and nominal GDP. In

July, the BoK highlighted the semiconductor-driven improvement in terms of trade (GDI) is likely to generate large ripple

effects on domestic demand (note).

Meanwhile, we revise down our July YoY headline CPI inflation forecast 2.7%YoY (vs. previous: 2.9%YoY) due to re-

calculation of retail gasoline price’s contribution. YoY core CPI inflation is likely to stay at 2.5%YoY for three months. In MoM

terms, we see a fall of MoM CPI inflation (-0.28%MoM vs. June: +0.06%MoM). We see both deflationary factors (a cut in retail

gasoline prices, a seasonal cut in electricity tariffs, and a fall in food prices) and inflationary factors (tourism-related service

prices, restaurant prices, and core goods inflation). For August, we see around 3.2%YoY CPI inflation and 3.3%YoY core CPI