South Korea’s advance Q2 GDP rose by 0.6% quarter-on-quarter, surpassing the Bloomberg consensus estimate of 0.4%, and increased 3.7% year-on-year compared to the expected 3.5% and the previous 3.8% reading [1]. This growth was driven by strong AI-related semiconductor demand and resilient domestic spending, despite energy supply disruptions [1]. The Ministry of Economy and Finance recently upgraded its 2026 growth forecast to 3.0% from 2.0%, citing a stronger outlook for exports and investment [1].
The robust GDP data has strengthened the case for a further 25 basis point rate hike by the Bank of Korea (BoK) at its 27 August meeting, which would bring the policy rate to 3.0% [1]. Governor Shin Hyun-sung previously described the August meeting as a “live” event, emphasizing the BoK’s data-dependent approach [1]. Policymakers are seen as having scope to continue normalizing policy, given resilient growth, inflation above target, and the broadening AI-driven export boom [1].
In the foreign exchange market, the USD/KRW pair fell 0.2% to 1,475, with the Won initially strengthening by 0.9% following the GDP release before paring some gains later in the session [1]. Portfolio inflows have also supported the Won, as foreign investors purchased USD1.0 billion of domestic bonds and USD3.7 billion of equities so far this week [1].
CONCLUSION
South Korea’s stronger-than-expected Q2 GDP and significant portfolio inflows have bolstered the Won and increased expectations for a Bank of Korea rate hike in August. The positive economic momentum, driven by AI-related exports and domestic demand, signals continued policy normalization and a favorable outlook for South Korea’s markets.