South Korea: Growth surge and BoK hike risks – ING

ING’s Senior Economist Min Joo Kang highlights that South Korea’s Gross Domestic Product (GDP) jumped 1.7% QoQ in 1Q26 on strong chip exports and AI-related investment, prompting an upgrade of the 2026 GDP forecast to 2.8% YoY. However, ING expects growth to slow in 2Q26 as energy disruptions bite, while rising inflation expectations and "chipflation" increase pressure on the Bank of Korea to hike rates in 2H26.

K shaped recovery complicates policy path

"We expect strong chip momentum to continue, but also a slowdown in 2Q26 growth as energy disruptions affect activity across petrochemicals and other manufacturing sectors. The Korean government implemented a temporary export ban on Naphtha, and Korean companies increased oil and gas imports from outside the Middle East. Despite these measures, manufacturing activity still cannot be sustained at full capacity."

"With solid first-quarter GDP and limited negative impact from the oil disruptions, we have revised up the 2026 GDP growth forecast from 2.0% YoY to 2.8%. We’re concerned that prolonged supply disruptions could hinder chip production and dampen investment in AI. If that happens, the economy could be hit even harder than other major economies because it relies heavily on the chip industry."

"Due to the implementation of government measures, the monthly inflation rate is expected to remain lower than that observed in other Asian energy-importing countries. We expect that the Consumer Price Index will increase by at least 0.7% MoM in April. It’s important to note that this rise is not only due to higher energy prices, but also "chipflation.""

"On the monetary policy side, the K-shaped recovery will put the BoK in a difficult position and likely constrain its policy responses. However, if GDP grows much higher than potential, as we expect, and inflation expectations rise further from here, we expect the BoK will focus on its inflation-targeting mandate. Thus, we continue to expect the BoK to deliver policy hikes in 2H26."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)