The KDI forecast South Korea’s gross domestic product to expand 0.9% this year. — The Korea Herald
SEOUL: South Korea’s state-run Korea Development Institute (KDI) is raising its growth outlook for both 2025 and 2026, marking its first upward revision in a year, as private consumption shows signs of recovery.
In its second biannual economic outlook report, the KDI forecast South Korea’s gross domestic product (GDP) to expand 0.9% this year, reflecting 0.3% growth year-on-year in the first half and 1.5% in the second, and marking a 0.1 percentage point increase from its August forecast.
Growth is expected to rise to 1.8% in 2026, up from the previous estimate of 1.6%, with the economy likely to post a modest recovery driven by domestic demand despite softer exports, the KDI said.
Jung Kyu-chul, KDI’s director of economic outlook, said the latest revision was driven mainly by a stronger-than-expected rebound in semiconductor exports.
“The chip cycle was much better than we anticipated, and we expect the sector to continue performing above earlier expectations,” he said.
He added that the new administration’s expansionary fiscal policy also contributed to the improved outlook.
The KDI’s 0.9% forecast aligns with the latest projections from the International Monetary Fund and the Bank of Korea, but falls slightly short of the 1% outlook from several institutions, including the Organisation for Economic Cooperation and Development, amid improving conditions in South Korea. Some estimates have suggested that fourth quarter growth above minus 0.1% would push the annual rate to 1%.
Jung said the KDI’s relatively cautious view reflects expectations for a slight contraction in the final quarter.
“The strong growth in the third quarter was largely driven by concentrated fiscal support, such as government spending coupons,” he said.
“Some of that effect is expected to fade in the fourth quarter, and a mild dip should be seen as a temporary adjustment within a broader recovery trend.”
The revision marks the first upward adjustment this year after a series of cuts. The KDI had initially forecast 2% growth for 2025 late last year, but lowered it to 1.6% in March amid political unrest following December’s martial law incident, and again to 0.8% in May, as global trade conditions deteriorated.
The KDI said the economy is gradually regaining momentum, supported by stronger consumption and steady export growth.
South Korea’s GDP rose 1.2% in the third quarter from the previous quarter, the fastest pace this year, driven by gains in private consumption, up 1.3%, capital investment, up 2.4% and exports, up 1.5%.
The recovery is expected to gather pace next year, said Jung.
“Economic conditions remained sluggish through the first half but have gradually improved in recent months,” he said. “While the economy is still operating below potential, the downturn has moderated, and we expect the recovery to become more visible next year.”
Consumption is expected to remain the main growth driver through 2026 as South Korea weathers slowing exports. The KDI projected outbound shipments to grow 1.3% next year, down from this year’s 4.1% expansion.
“The impact of tariff hikes is expected to gradually spread, which could lead to a mild slowdown in South Korea’s export growth,” said Kim Ji-yeon, KDI’s lead economist for economic outlook.
She noted that the effects are already evident in major economies, including the United States, where inflation is rising and employment is weakening. — The Korea Herald/ANN
