South Korea's economy grew faster than expected in the second quarter as robust semiconductor exports offset weakness in construction investment, reinforcing optimism around the country's technology sector even as the central bank remains on course for further interest rate hikes, according to Reuters.

Advance estimates released by the Bank of Korea on Thursday showed gross domestic product (GDP) expanded 0.6% in the April-June quarter from the previous three months on a seasonally adjusted basis, ahead of the 0.4% growth forecast by economists polled by Reuters.

The economy slowed from the 1.8% expansion recorded in the first quarter but continued to benefit from strong global demand for semiconductors, suggesting export-led momentum remains intact despite tighter monetary policy.

According to Reuters, Bank of Korea officials said the economy would still be able to achieve around 3% annual growth this year if quarterly growth remains above a modest threshold during the second half.

The central bank had raised its 2026 growth forecast to 2.6% in May and is expected to revise its outlook in August.

On a year-on-year basis, South Korea's economy expanded 3.7% in the second quarter, beating the Reuters poll estimate of 3.5%.

Exports increased 1.4% from the previous quarter, led by shipments of semiconductors, machinery and equipment, while private consumption rose 0.4%. Construction investment, however, declined 0.2%, reflecting continued weakness in the domestic property sector.

Stock impact
The stronger-than-expected GDP reading is likely to support sentiment towards South Korean equities, particularly semiconductor and export-oriented companies such as Samsung Electronics and SK Hynix, as the data underscores resilient global demand for chips.

Industrial and capital goods stocks may also benefit from the improvement in machinery exports. However, gains in the broader market could be capped by expectations of further monetary tightening. Elevated inflation and resilient economic growth have strengthened the case for additional interest rate hikes by the Bank of Korea, a development that could weigh on interest rate-sensitive sectors such as construction, real estate and consumer-focused companies.

According to a Reuters poll, the Bank of Korea is expected to deliver at least one more rate hike before the end of the year, with the benchmark policy rate projected to reach 3.00%, before rising to 3.25% in the first quarter of 2027.