SEOUL: Moody’s is raising South Korea’s 2026 growth forecast to 3.5% from 2.5%, betting that the artificial intelligence (AI)-driven memory chip boom will extend into mid-2027.
Earlier this month, the ratings agency projected that Korea’s gross domestic product (GDP) would grow 3.5% this year and 2.7% next year in its periodic review of the country’s sovereign credit ratings.
The latest outlook marks a full percentage-point increase from Moody’s May forecast of 2.5% growth for the Korean economy in 2026. It also nearly doubles the agency’s projection from February when it estimated growth at 1.8%.
“The chip cycle is expected to remain strong at least into the middle of 2027, with continued demand for chips and limited viable alternatives to Korean high-end memory suppliers,” the report said.
“While domestic consumption growth has lagged the stark rise in exports, we expect headline GDP to expand 3.5% in 2026 and 2.6% in 2027 as the export upcycle continues.”
Moody’s further highlighted that merchandise exports – a key driver of headline growth – were up 51% year-on-year in the first six months of this year, underpinned by strong growth in semiconductors.
It attributed the stronger growth outlook to increased demand stemming from hyperscalers’ AI investment buildout, as well as a memory chip shortage.
On the fiscal front, strong revenue from the chip boom has eased pressure on the government’s budget.
Korea is expected to post a slightly narrower fiscal deficit of 3.8% of GDP in 2026, compared with the original target of 3.9%.
“Continued revenue outperformance and improved growth prospects may result in even stronger fiscal consolidation.”
Moody’s also noted that government-led chip-focused megaprojects aim to create new growth engines while promoting more balanced development beyond the capital.
The initiative, unveiled in June, calls for a new semiconductor belt in the Honam region of southwestern Korea, an advanced semiconductor packaging hub in the Chungcheong region, and a nationwide expansion of AI data centres.
“The strategy represents ongoing and concerted policy efforts to keep abreast of technological innovation through a thrust on AI and other measures to boost productivity and lift potential growth, if successfully implemented,” it said.
Moody’s 3.5% growth forecast for this year is higher than the Korean government’s 3% projection, which was itself raised from 2% in July.
The International Monetary Fund also raised its 2026 growth forecast for South Korea to 2.6% from 1.9% in July, while Morgan Stanley lifted its forecast to 3.4% from 2.8% earlier this month. — The Korea Herald/ANN
