Seoul: South Korea's state-run economic think tank on Wednesday raised its 2026 growth forecast for the domestic economy to 1.9 percent, citing strong semiconductor exports and a recovery in consumer spending.

According to Yonhap News Agency, the new projection by the Korea Development Institute (KDI) marks a 0.1 percentage-point increase from its November forecast. "Despite potential setbacks from U.S. tariff increases and delayed recovery in construction investment, growth is expected to expand moderately this year, driven by robust semiconductor exports and a rebound in consumption," the KDI said in its latest report.

The revised forecast aligns broadly with estimates from other major institutions and the South Korean government. The International Monetary Fund (IMF) projects real gross domestic product (GDP) growth of 1.9 percent, the Bank of Korea 1.8 percent and the Organization for Economic Cooperation and Development (OECD) 2.1 percent.

Last month, U.S. President Donald Trump threatened to raise tariffs on South Korea, including duties on autos, lumber and pharmaceuticals, from 15 percent to 25 percent, citing delays in passing a special investment bill necessary to implement the countries' bilateral trade deal reached in October.

Looking ahead, the KDI said the full impact of U.S. tariff hikes could dampen overall export conditions, yet strong chip demand on optimism surrounding artificial intelligence (AI) is expected to sustain outbound shipments. In addition, the effects of cumulative interest rate cuts are expected to support a recovery in consumer spending as real incomes improve.

"Rising semiconductor export prices and falling crude oil import prices are expected to boost purchasing power, leading to real gross domestic income growth exceeding that of real GDP," the KDI said. Meanwhile, despite accumulated construction orders, delays in project launches due to the slowing local real estate market could postpone the recovery of construction investment, it noted.