The Zhitong Finance App learned that due to the continued boom in chip exports driven by artificial intelligence, the South Korean economy recorded more than expected growth in the second quarter, providing support for the central bank to further raise interest rates. According to data released by the Bank of Korea on Thursday, the gross domestic product (GDP) grew 0.6% month-on-month in the three months up to June, compared to 1.8% in the previous quarter. This reading is higher than the 0.4% median forecast of market research economists.
Despite a decline from the impressive performance of the first quarter (the fastest growth rate since the end of 2021), the latest data continues the trend where recent economic data has repeatedly exceeded expectations, which has prompted the government, central bank, and the International Monetary Fund to raise Korea's economic growth outlook several times.
This strong performance will support central bank officials to consider another rate hike in the coming months. The Bank of Korea just raised interest rates for the first time since 2023 last week. According to a recent survey of economists, the market expects another rate hike before October, and a few predictions suggest that action may be taken at the August 27th board meeting.
Cho Yong-gu, a fixed income strategist at Shinyoung Securities Co., said on the phone: “This increase has exceeded expectations and is likely to increase the possibility of continuous interest rate hikes.”
After the interest rate hike on July 16, Bank of Korea Governor Shin Hyun Song (Shin Hyun Song) said that since inflation is still above target, economic growth is strengthening, and financial stability risks continue to accumulate, policymakers will maintain a hawkish stance. The central bank also said that it will “drastically” raise its economic growth forecast at next month's meeting.
Economists had previously predicted that the growth rate in the second quarter would slow down from the beginning of the year due to the spillover effects of the Iran war that broke out at the end of February on the economy. South Korea is one of the economies most dependent on energy imports in the world. It is highly sensitive to rising oil prices and rising import costs. This negative impact partially offsets the benefits brought about by the semiconductor boom.
After an unusually strong performance in the first quarter, although the overall growth momentum has not changed, the market generally expects the GDP growth rate to decline somewhat in the second quarter. It is difficult for chipmakers to rapidly expand production capacity to meet explosive AI-related demand, and despite strong orders, output growth is still constrained.
South Korean economist Hyosung Kwon said, “This GDP report is likely to put interest rate hikes on the agenda for the August meeting — Governor Shin Hyun-song has previously called the meeting an 'effective meeting'. Our previous expectations were on hold; now the benchmark forecast is a 25 basis point rate hike, but we still think this is an evenly balanced decision.”
According to central bank data, exports increased 1.4% month-on-month in the second quarter, mainly driven by growth in semiconductor shipments; imports increased 0.8%, driven by growth in automobiles, machinery and equipment.
According to data from Korea's Ministry of Trade, chip shipments soared about 163% year-on-year in the first half of the year, surpassing the historical annual shipment record set for the whole of 2025. Computer exports also soared 262%.
Officials believe that demand for AI-driven chips is increasingly spilling over to the overall economy through channels such as improved corporate profits, increased investment, and increased wages and taxes, thus buffering the impact of external headwinds.
This trend has also supported household consumption. Private consumption increased 0.4% month-on-month, compared to 0.6% in the previous quarter; government consumption increased 2.2%. Investment in equipment increased slightly by 0.2% in the quarter after jumping 6.6% in the previous quarter; investment in construction declined by 0.2% after rising 1.4% in the previous quarter.
Recent data continues to confirm economic resilience: exports are boosted by strong chip shipments, and the year-to-date current account surplus has surpassed the record for the full year of last year. The strength of economic recovery also began to spread to the price side, and inflation accelerated to the fastest level since the end of 2023 in June.
Cho said, “Due to the high base effect, stock price correction, and rising oil prices, the month-on-month growth rate in the third quarter may be the lowest in the year. Even so, we plan to raise our full-year growth forecast to around 3.3%.”