Why could the chip boom extend South Korea’s growth cycle?
- After Samsung Electronics and SK Hynix reported strong third-quarter results for 2026, Citi’s equity research team forecast that the memory-chip shortage could last until 2029, with long-term agreements for 2027–2028 covering more than 50% of capacity. Citi’s economics team believes this will help sustain South Korea’s exports and current-account surplus.
- Citi maintained its forecasts for South Korea’s real GDP growth at 3.8% in 2026 and 3.3% in 2027. It expects quarter-on-quarter real GDP growth to remain at 0.8%–1.0% from the fourth quarter of 2026 through the second quarter of 2027, supported by the memory-chip upcycle and its boost to domestic demand.
- Recent production data have already improved: all-industry output rose 3.0% month on month in September, compared with a decline of 1.2% in August. Semiconductor output was driven by strong memory-chip shipments ahead of the quarter-end, while automobile output also rebounded from disruptions caused by strikes and holidays.
How do corporate profits feed through to South Korean domestic demand?
- Citi expects the two memory-chip companies to pay a combined total of about 60 trillion won in employee bonuses at the end of the first quarter of 2027. Government transfer payments funded by increased corporate tax receipts, as well as shareholder dividends starting in the fourth quarter of 2026, will also feed through to private consumption over time.
- The funds will arrive at different times: the two companies plan to pay a combined total of about 44 trillion won in third-quarter dividends by the end of November 2026, with about half going to foreign investors. The remainder of the 2026 shareholder return plans is estimated at 80 trillion to 110 trillion won; the exact amount is expected to be determined around the end of January 2027, with dividends paid in April.
- Citi expects the two companies to pay a combined total of about 70 trillion to 90 trillion won in the second installment of corporate taxes for 2026 in 3–April 2027, up from about 40 trillion to 50 trillion won in the first installment paid in 8–September 2026.
How will the growth outlook affect South Korean interest rates?
- Citi’s preliminary view is that the Bank of Korea could raise its estimate of potential economic growth for 2026–2028 to about 2.5%, from its previous estimate of 2.0% for 2024–2026. Higher potential growth would imply a possible change in the central bank’s assessment of the economy’s capacity for sustained growth.
- The bank expects the median estimate of South Korea’s nominal neutral interest rate to rise to 2.7%–3.0% from the second half of 2026 to the second half of 2028. It maintains its view that the Bank of Korea will raise rates by 25 basis points each in November 2026 and February 2027, reaching a terminal rate of 3.5%.
Why does the current-account surplus support the won, and what limits the effect?
- Citi expects South Korea’s current-account surplus to average 22% of GDP in 2026–2028, compared with an average of 4% in 2016–2025. The bank believes shareholder returns, employee bonuses and domestic capital expenditure needs at memory-chip companies will keep the proportion of export receipts converted into won high, broadly benefiting the currency.
- However, the foreign-investor portion of shareholder returns will weaken this effect: Citi roughly estimates that about half of shareholder returns could be converted back into US dollars if foreign equity investors repatriate the funds.