Samsung Electronics and SK Hynix [Yonhap]
Samsung Electronics and SK Hynix [Yonhap]

Moody's has sharply raised its growth forecast for the South Korean economy this year to 3.5%, nearly doubling the 1.8% projection it issued just six months ago.

The upgrade reflects the ratings agency's view that a semiconductor "supercycle" driven by surging AI investment will continue at least through mid-next year, with strong export momentum expected to persist alongside it.

According to government officials Tuesday, Moody's released the revised projections in a report following its regular review of South Korea's sovereign credit rating, forecasting real GDP growth of 3.5% this year and 2.7% next year.

The 3.5% figure for this year is 0.3 percentage points above the 3.2% average forecast compiled by the Korea Center for International Finance from eight major investment banks as of late last month.

Moody's has revised its outlook for the Korean economy sharply upward throughout this year. In its February sovereign rating report, the agency projected growth of 1.8%, then raised that to 2.5% in its May global economic outlook. The latest revision adds another full percentage point, bringing the figure to 3.5% — a cumulative increase of 1.7 percentage points in six months.

The semiconductor boom and rising exports underpin the upgraded forecast. Moody's said expanding AI-related demand is providing a powerful growth engine for South Korea's flagship export, high-performance memory chips.

"Chip demand continues, and there are limited realistic alternatives to Korea's advanced memory suppliers," Moody's said, adding that it expects the semiconductor cycle to remain strong at least through mid-2027.

The agency noted a 51% year-on-year increase in South Korea's goods exports in the January–July period this year, saying the strong export performance was "supported by very strong semiconductor growth."

The government's three mega-projects — centered on semiconductors, AI data centers and physical AI — also drew a positive assessment as factors that could enhance the country's long-term growth potential.

Moody's said the government is using the mega-projects to secure new growth engines while easing the concentration of activity in the Greater Seoul area and promoting balanced regional development. The agency called the initiative a demonstration of "sustained and consistent policy efforts to keep pace with technological innovation," and added that successful implementation could raise productivity and lift the potential growth rate.

The stronger growth outlook also points to better-than-expected fiscal conditions. Moody's projected that continued surplus tax revenue and stronger-than-anticipated economic expansion would bring South Korea's fiscal deficit to 3.8% of GDP this year, 0.1 percentage point below the government's original target.

Over the medium to long term, however, the agency said rising mandatory spending tied to aging, defense and security costs, and the investment needed to maintain export competitiveness could all add to fiscal pressure — signaling a need for policy reforms to address structural fiscal strains.

Moody's had previously assigned South Korea a sovereign credit rating of Aa2, citing the country's policy effectiveness and economic strengths while flagging rising government debt and long-term fiscal pressures from aging as key challenges.

The latest report does not constitute a new rating decision. Moody's said the regular review does not signal that a rating change or new rating announcement for South Korea is imminent.


fact0514@heraldcorp.com