"Real GDP alone insufficient to explain current economy; nominal GDP must also be considered"

Bank of Korea Governor Shin Hyun-song arrives at a press briefing on the bank's inflation target operations for the first half of 2026, held at the Bank of Korea annex in Jung-gu, Seoul, on Wednesday. [Yonhap]
Bank of Korea Governor Shin Hyun-song arrives at a press briefing on the bank's inflation target operations for the first half of 2026, held at the Bank of Korea annex in Jung-gu, Seoul, on Wednesday. [Yonhap]

Bank of Korea Governor Shin Hyun-song said Friday that the central bank's growth forecast for this year is likely to be revised upward from the figure it released last month.

Speaking at a dinner keynote address at the Korean Finance Association's regular academic conference at a hotel in Jung-gu, Seoul, Shin said a recently released preliminary figure had revised South Korea's first-quarter real gross domestic product growth rate up to 1.8 percent from 1.7 percent on a quarter-on-quarter basis.

He added that the annual growth forecast for this year would therefore be revised upward from 2.6 percent, "even on a purely mechanical basis."

Shin doubled down on his view that nominal GDP growth — which is not adjusted for price changes — deserves closer attention.

"Nominal GDP growth has not been this high in the past 26 years," he said, adding that the surge was not driven by domestic inflation but by a rapid rise in export prices.

He went on to say that real GDP alone was insufficient to fully explain the current state of the economy, and that nominal GDP should be watched as a key indicator of domestic economic conditions.

"Macroeconomics conventionally sets aside nominal GDP in favor of real GDP, but that approach does not fit the current situation," Shin said. "Because exports are performing well, nominal GDP is also having a significant impact on the real economy."

Commenting on the 13.2 percent year-on-year surge in real gross domestic income in the first quarter of this year, Shin said the improvement in the terms of trade despite a sharp rise in oil prices was ultimately attributable to a significant increase in semiconductor prices.

He went on to say that if the AI and semiconductor boom were to lift long-term growth rates, it would be worth examining whether the neutral interest rate and the low growth trajectory implied by demographic trends might also change. "We need to ask whether demographics must necessarily determine the fate of an economy," he said.

The updated forecast is set to be released on Aug. 27.


dingdong@heraldcorp.com