Seoul: South Korea's increasing reliance on semiconductor exports may expose the nation to external shocks and cyclical volatility, despite their role as a significant growth catalyst, the Organization for Economic Cooperation and Development (OECD) announced Thursday.

According to Yonhap News Agency, the OECD's evaluation was published in a report titled "OECD Economic Surveys: Korea 2026," coinciding with a recent upgrade of South Korea's economic growth forecast for the year, from 1.7% to 2.6%, driven by the artificial intelligence boom. The report highlights the pivotal role of semiconductor exports in driving growth, with exports and investments accelerating in early 2026.

Douglas Sutherland, head of division at the OECD Economics Department, emphasized during a report press conference in Sejong that government support, a resilient labor market, and increased domestic demand continue to bolster South Korea's growth. Recent government data revealed that South Korea's monthly exports exceeded the US$100 billion mark for the first time in June, bolstered by a record-breaking performance in chip exports.

However, the OECD cautioned that this dependence could lead to volatility in output and tax revenues, alongside strategic vulnerabilities. Sutherland advised that South Korea should carefully monitor the semiconductor cycle and prepare for possible fluctuations, suggesting that "excess revenue" from chip exports be allocated to future growth engines and addressing pending challenges.

The report also addressed South Korea's demographic challenges, urging the country to create a consensus on a robust fiscal framework to improve fiscal health amid rising spending pressures. Despite a recent uptick in birth rates, South Korea's total fertility rate remains significantly below the level needed to maintain a stable population without immigration.

Furthermore, the OECD recommended reforms in South Korea's pension system, labor market, and property tax structure to ensure long-term sustainability and economic resilience. It noted that reforming income tax exemptions could generate additional revenue to address the aging population's challenges.

The organization also advised South Korea to remain vigilant about energy price volatility, suggesting that the country should be prepared to adjust policies to maintain long-term inflation expectations while addressing domestic demand pressures.