Seoul: South Korea's economy is expected to grow 3.2 percent in 2026, a state-run think tank said Wednesday, revising up its previous forecast of 2.5 percent amid stronger-than-expected global demand driven by the artificial intelligence (AI) boom.
According to Yonhap News Agency, the Korea Development Institute (KDI) stated that the revision was due to the sustained global demand for semiconductor products, which has led to increased exports and facility investment. This growth is expected to eventually boost private consumption in 2027. The KDI also projected economic growth of 2.2 percent for 2027, up 0.5 percentage point from its previous outlook.
The think tank noted that South Korean export volumes are expected to grow 8.7 percent and 5 percent in 2026 and 2027, respectively. This growth persists despite U.S. tariff measures and geopolitical uncertainties in the Middle East, as AI-related investment worldwide is anticipated to counter these challenges.
The KDI reported that South Korea is experiencing a rise in exports and facility investment amid the AI boom. The exports of computers, electronics, and optical instruments are increasing rapidly, contributing to an unprecedented current account surplus. However, construction investment remains sluggish due to a downturn in the housing market outside the greater Seoul area.
Global credit appraiser Moody's Ratings has also reportedly revised up the growth forecast for Asia's fourth-largest economy to 3.5 percent, increasing from the previous projection of 2.5 percent made in May. Nevertheless, the KDI cautioned that changes in the semiconductor industry cycle might heighten economic volatility due to South Korea's heavy reliance on global chip demand.
The KDI warned that growth might decelerate rapidly if global AI investment contracts due to profitability concerns or if South Korean chipmakers lose global market share amid increased competition. Conversely, growth may surpass expectations if South Korean companies accelerate their semiconductor production capacity expansion.
Other potential risks include uncertainties surrounding U.S. tariff policies and geopolitical tensions in the Middle East, which could disrupt raw material supplies, KDI added.