Goldman Sachs Raises Korea Growth and Terminal Rate Forecasts, Sees Longer AI Memory Cycle Upside

Overview

Goldman Sachs believes Korea is in a stronger and more durable semiconductor upcycle driven by AI capex. The upward revision in memory demand should materially improve exports, the current account, and fiscal revenue, while also lifting growth forecasts for 2026 to 2027. At the same time, the spillover of this external-demand and technology cycle into domestic consumption, employment, and wages remains limited, so Korea's macro picture is characterized by strong external and fiscal accounts, but narrow domestic transmission.

Core views

The report's core conclusions are: first, the AI-driven memory demand shock is stronger and longer-lasting than previously expected, and Korea's goods exports could exceed USD 1 trillion in 2026, with the current account surplus above 15% of GDP. Second, the growth upgrade is mainly driven by capex and R&D, with only a small contribution from wealth effects. Third, the divergence between semiconductors and non-tech sectors is widening, and spillovers into wages and core goods inflation remain limited. Fourth, Seoul metropolitan housing prices are re-accelerating, while other regions are stable, so financial stability risks are more localized. Fifth, stronger external and fiscal fundamentals imply that a weak KRW is inconsistent with fundamentals, and policy will place greater emphasis on KRW stability and preventing overheating.

Analysis framework

The report uses an integrated framework covering macro forecast revisions, sector divergence, external accounts, fiscal revenue, labor market dynamics, wage pass-through, housing prices, and the monetary policy path. Goldman Sachs transmits the upward revision in AI memory demand into forecasts for exports, the current account, GDP, tax revenue, and the policy rate, while testing whether the semiconductor boom will spread to the broader domestic economy through employment, wages, consumption, and the housing market.

Methodology notes

• Macro forecastGDP and inflation forecast revision

  Transmission of the AI capex shock into Korea's growth forecasts

  Goldman Sachs incorporates stronger AI memory demand into growth forecasts mainly through capex and R&D channels, while assigning only a small weight to wealth effects.

• External sectorCurrent account and FX flow analysis

  Opposing effects of current account surplus and overseas securities outflows on the KRW

  The report notes that although the current account is reaching new highs, net foreign equity outflows, rebalancing demand, and leveraged positioning are still leaving the KRW weak.

• Policy analysisBOK policy rate path

  Longer hiking cycle and higher terminal policy rate

  Against a backdrop of stronger growth, some imported inflation risk through FX, but still limited domestic demand pressure, Goldman Sachs raises its forecast for Korea's terminal policy rate from 3.0% to 3.25% and expects the hiking cycle to extend into 2027.

• Sector transmissionSemiconductor and non-tech sector divergence

  K-shaped economic cycle

  The report compares semiconductor exports, non-tech exports, retail, consumption, employment, and profits, and concludes that the semiconductor boom has not yet broadly spread to the domestic economy.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• KRW

  Directly affected by Korea's current account, foreign equity outflows, inflation pass-through, and the policy objective of stability

  Strengths

  The current account and fiscal fundamentals have improved significantly, and the report sees the KRW as weak relative to fundamentals and policy direction.

  Weaknesses

  Net foreign equity outflows, rebalancing demand, and leveraged positions have offset the support to the currency from the current account improvement.

  Comparison

  Relative to the improvement in fundamentals, the KRW has been weak; the report suggests KRW stability may become a broader policy priority.

  Risks

  If capital outflows persist or oil prices and import prices rise sharply, KRW repair may be delayed; if the KRW appreciates too quickly, the need for further hikes would diminish.

• Korea policy rate and rates market

  Affected by the BOK's inflation expectations management, growth upgrades, housing-price risks, and household debt constraints

  Strengths

  Stronger growth and improved external accounts support a higher terminal rate forecast.

  Weaknesses

  Limited domestic demand pressure and high household debt-servicing burdens constrain the room for rapid tightening.

  Comparison

  The report says rates markets are pricing a policy path that is more hawkish than Goldman Sachs expects.

  Risks

  Wage pressure is an upside risk to rates, while KRW appreciation is a downside risk to rates.

• Korea semiconductor and memory supply chain

  The AI capex boom drives memory demand, exports, corporate profits, and tax revenue

  Strengths

  The memory demand outlook has been upgraded, and semiconductor company operating profit is expected to grow sharply year on year in 2026.

  Weaknesses

  The industry is highly capex-intensive, creates limited employment, and has weak transmission to domestic consumption.

  Comparison

  Semiconductor profit growth is significantly higher than that of non-tech listed companies and non-manufacturing companies.

  Risks

  A slowdown in global AI capex, a reversal in the memory price cycle, or regional overcapacity would weaken growth and fiscal benefits.

• Korea real estate

  Policy attention is shifting from broad inflation to localized financial stability risks in the Seoul metropolitan area

  Strengths

  Housing prices in the rest of the country are relatively stable, allowing policy to remain targeted rather than broadly tightening.

  Weaknesses

  Housing prices in the Seoul metropolitan area have re-accelerated since May, which may trigger overheating concerns.

  Comparison

  Current trends differ from the nationwide housing boom during the pandemic and are more regionally divergent.

  Risks

  If Seoul housing prices keep rising, the BOK and the government may strengthen macroprudential or monetary policy signals.

• Korea equity market

  AI and semiconductor earnings upside support equities, but foreign rebalancing outflows affect the exchange rate

  Strengths

  Improving semiconductor earnings and the AI theme may continue to support market sentiment.

  Weaknesses

  Wealth effects are concentrated among affluent and older households, so the transmission to consumption is limited.

  Comparison

  The report argues that Korea's financial assets are small relative to real estate assets, so the wealth effect is more similar to Australia than to economies with stronger equity-to-economy transmission.

  Risks

  FX rebalancing pressure caused by equity gains could weaken the KRW and increase the need for policy stabilization.

Key data

• 2026 real GDP growth forecast2.7%Raised by 10bp from the previous forecast, above the BOK's 2.6% forecast and Bloomberg consensus of 2.6%.
• 2027 real GDP growth forecast2.3%Raised by 40bp from the previous forecast, above the BOK's 2.1% forecast and Bloomberg consensus of 2.0%.
• 2026 inflation forecast2.6%Goldman Sachs left the forecast unchanged, versus 2.6% for Bloomberg consensus and 2.7% for the BOK forecast.
• 2027 inflation forecast2.2%Goldman Sachs left the forecast unchanged, versus 2.1% for Bloomberg consensus and 2.3% for the BOK forecast.
• Terminal policy rate forecast3.25%Raised from the previous 3.0%, with the hiking cycle expected to extend into 2027.
• 2026 goods export target magnitudeAbove USD 1 trillionDriven by robust memory demand.
• 2026 current account surplusAbove 15% of GDPThe AI-driven super surplus is expected to keep accelerating into year-end.
• Additional memory-related tax revenueAbout 2% of 2026 GDPCould narrow the consolidated fiscal deficit from the planned 1.9% to below 0.5%.
• Wage share of Korea's tech sectorAbout 3% of total wage bill, or about 1.2% of GDPLower than Taiwan's share, limiting overall wage transmission.
• Bonus payments after tax at major memory companiesAbout 0.5% of GDP in 2026 and about 0.9% of GDP in 2027Restricted equity compensation and a tax rate near 50% weaken short-term consumption transmission.

Impact & implications

For investors, Korea's macro fundamentals are gaining a longer-lasting tailwind from the AI semiconductor cycle, supporting external accounts, fiscal revenue, and growth expectations. However, because transmission to domestic demand, employment, and wages is limited, monetary policy is unlikely to tighten sharply and rapidly. At the asset level, the report more strongly supports the case for KRW fundamental repair, while noting that rate markets have already priced in a more hawkish path and that Seoul metropolitan real estate requires more targeted macroprudential attention.

Risks

• If wage pressure spreads more than expected, it could lead to higher inflation and a more hawkish policy path.
• If the KRW appreciates materially, it could reduce the need for further hikes and pose downside risk to the policy rate forecast.
• If AI capex or memory demand falls short of expectations, the logic behind the upward revision to exports, the current account, fiscal revenue, and GDP will weaken.
• If Seoul metropolitan housing prices continue to accelerate, localized financial stability risks may broaden.
• If assumptions related to Gulf oil exports and the Strait of Hormuz deteriorate, import prices and inflation pressure could rise again.
• Low profitability in non-tech sectors, weak employment, and soft consumption could limit a broad-based recovery in the Korean economy.

What to watch

• Whether Korea's memory exports, orders, and prices continue to validate the upward revision in AI demand.
• Whether goods exports in 2026 move toward above USD 1 trillion and the current account surplus remains above 15% of GDP.
• Whether pressure on the KRW from net foreign equity outflows, rebalancing demand, and leveraged positions eases.
• BOK policy communication, inflation expectations, and the market-implied policy rate path.
• Whether the divergence between Seoul metropolitan housing prices and those in other regions continues to widen.
• Whether semiconductor wages, bonuses, and employment begin to spill over into a broader range of industries.
• Whether non-tech exports, retail sales, and overall consumption recover from weakness.
• Whether the fiscal revenue upside is saved or converted into pro-cyclical spending.