Global investment banks raise Korea's growth outlook for 1st time in 16 months

Myeong-dong, one of Seoul's major shopping districts, is filled with pedestrians, May 25. Yonhap

Major global investment banks raised their forecasts for Korea's real gross domestic product (GDP) growth this year, bringing the consensus closer to 1 percent, according to the Korea Center for International Finance (KCIF), Friday.

This marks the first upward revision in 16 months, since February of last year. Until now, the forecasts had either been revised downward or remained unchanged.

According to the KCIF data, the average growth forecast from eight major investment banks rose from 0.8 percent at the end of May to 0.9 percent at the end of June.

The upward revisions by Barclays (from 1 percent to 1.1 percent), Bank of America Merrill Lynch (from 0.8 percent to 1 percent) and UBS (from 1 percent to 1.2 percent) played a significant role in this adjustment.

Goldman Sachs maintained its forecast at 1.1 percent, Nomura at 1 percent, HSBC at 0.7 percent, Citi at 0.6 percent and JPMorgan at 0.5 percent.

Investment banks have recently adopted a slightly more optimistic outlook on the Korean economy, reflecting increased policy stability under the new Lee Jae Myung administration and its aggressive expansionary fiscal stance.

In an interview with CNBC on Wednesday, Bank of Korea (BOK) Gov. Rhee Chang-yong stated that the supplementary budget package could raise this year’s growth rate by approximately 0.2 percentage points.

They also expect exports to improve amid easing trade tensions between the U.S. and China. The stimulative effects of the first and second supplementary budgets were likewise evaluated positively.

However, investment banks have identified the continued rise in Seoul apartment prices as a key variable. They noted that if this trend persists, the BOK may delay its pace of interest rate cuts longer than expected, which could weigh on economic growth.

The BOK also acknowledged this concern in a recent policy briefing to the presidential committee for state affairs, stating it would "carefully determine the timing and pace of further rate cuts to avoid fueling excessive housing market expectations."

The BOK is scheduled to set the policy rate at its upcoming meeting on Thursday. A revised economic outlook will be published on Aug. 28. Market watchers largely anticipate no rate change in July, following the cut in May.