Bank of America has nudged up its economic growth outlook for South Korea in 2027, increasing the forecast to 2.2% from a prior 2.0%, citing an AI-driven semiconductor upcycle that it says is bolstering both domestic expansion and the nation's external balance. The bank left its 2026 GDP growth projection unchanged at 3.1% year-over-year, a figure that had been upgraded in late May.
In a report dated June 25, 2026, the firm identified three principal drivers behind the revised outlook:
- Accelerating AI demand and rising prices in semiconductors, which the bank says are supporting stronger medium-term growth momentum.
- De-escalation in tensions in the Middle East.
- A more hawkish Federal Reserve under Chair Warsh.
The same report raised the bank's forecast for South Korea's current account surplus to 16.1% of GDP in 2026 and to 16.8% of GDP in 2027.
On the consumer side, Bank of America highlighted a marked pickup in high-end spending. Department store sales climbed 24.5% year-over-year in May, versus a 9% increase for overall retail sales, a divergence the bank noted despite continued elevated inflationary pressures. The firm pointed to an equity rally and a rebound in tourism as contributors to a wealth effect that is improving sentiment and supporting domestic demand.
Bank of America adjusted its inflation outlook as well, trimming its 2026 consumer price index forecast to 2.6% from 2.7%, while raising its 2027 CPI estimate to 2.2% from 2.0%. In response to the revised inflation path and the growth backdrop, the bank now anticipates three Bank of Korea rate hikes - likely to occur in July, October, and January - which would bring the terminal policy rate to 3.25% by early 2027.
Separately, the bank's foreign-exchange strategist pushed the year-end USD/KRW forecast materially higher to 1,560, a level noted to be well above current forward market pricing.
These revisions combine updated views on external balances, consumer behavior, inflation, monetary policy and foreign exchange. The report ties the improvement in Korea's near- to medium-term macro outlook to semiconductor demand tied to AI, the easing of geopolitical risk in the Middle East, and anticipated changes in U.S. monetary stance under Chair Warsh.
While the report sets out these forecasts and the timing for expected Bank of Korea moves, it presents the projected figures and the scenarios that underpin them without assigning probabilistic weights beyond the timing language used for the likely rate hikes.
Key takeaways from the report include upgraded growth and current account forecasts, revised CPI projections, an explicit path of Bank of Korea rate increases, and a materially higher year-end USD/KRW target.