BofA raises South Korea 2026 GDP forecast to 3.1% on AI boom

Bank of America has sharply raised its 2026 GDP growth forecast for South Korea to 3.1 percent from 1.9 percent, citing an AI-driven semiconductor boom that is lifting exports, investment, consumption, and government tax revenue simultaneously. The revision marks one of the most bullish calls on Korea's economy, with DRAM price forecasts upgraded by 48 percent, year-to-date exports rising 41 percent with semiconductors accounting for 36 percentage points of that growth. The bank also projects the current account surplus to reach 15 percent of GDP, with combined capital expenditure by Samsung Electronics and SK hynix expected to rise 41.9 percent this year. The semiconductor upswing is beginning to spread beyond exports, with facility investment rebounding in the first quarter and retail sales rising 7.3 percent year-on-year in March, the strongest pace since August 2022. BofA estimates Samsung and SK hynix could collectively contribute over 100 trillion won ($66.68 billion) in tax revenue this year, about 4 percent of GDP, more than 10 times their 10-year average. However, the stronger outlook has prompted BofA to expect the Bank of Korea to raise interest rates twice in the second half of this year, taking the terminal rate to 3 percent, citing above-trend growth, inflation around 2.7 percent, and continued won weakness near the 1,500 level against the dollar. Meanwhile, Taiwan is experiencing similar dynamics, with its GDP expanding 8.63 percent in 2025 and 13.69 percent in the first quarter of this year, driven by semiconductor powerhouse TSMC which handles about 90 percent of the world's most advanced AI chips. Yet this growth has created what central bank Governor Yang Chin-lung described as an emerging "K-shaped economy," where the tech sector thrives while other industries stagnate. Critics point to wealth inequality concerns, with Taiwan's Gini coefficient rising from 0.308 in 1980 to 0.341 in 2024, and 70 percent of Taiwanese earning less than the average wage. South Korea, Taiwan, and Japan markets have all reached record highs alongside this AI capital spending boom, though analysts warn that risks remain around whether the AI cycle can sustain into next year, potential energy shocks, and geopolitical spillovers from the ongoing Middle East conflict.