SEOUL: South Korea’s state-run think tank raises its growth forecast for this year, surpassing the government’s already bullish projection as a stronger-than-expected global semiconductor boom, fuelled by artificial intelligence (AI), drives exports and investment.
The Korea Development Institute (KDI) said it sees the economy growing by 3.2% in 2026, up from its May projection of 2.5%, citing resilient global chip demand that’s expected to filter through the economy.
The revised outlook surpasses a 3% forecast by the government and a 2.6% projection published by the International Monetary Fund last month.
The latest forecast comes amid a wave of revised growth projections by economists and policymakers as they try to factor in the surging strength of AI demand and gauge how long it might last.
KDI said South Korea’s expansion since the second half of last year is expected to maintain momentum as AI demand continues to drive semiconductor exports, offsetting higher import costs stemming from the war in the Middle East.
Exports are expected to grow 8.7% this year and 5% next year, KDI said.
A Bloomberg News survey of private economists last week projected growth at 3.3% in 2026, up sharply from a 2.8% forecast in July.
The Bank of Korea (BoK) is set to revise its forecasts for gross domestic product and inflation at its monetary policy meeting on Aug 27, alongside a dot plot showing where policymakers expect rates to be over the next six months.
The central bank in May estimated the economy would grow by 2.6% this year.
The rapidly strengthening growth projections are feeding into expectations that the BoK will raise interest rates again in the coming months after its July hike.
Governor Shin Hyun Song said last month that the next several meetings would all be live, while stopping short of telegraphing a back-to-back move.
Among its other forecasts, KDI also sees soaring chip prices generating an unusually large current account surplus of about US$360bil this year and next.
The think tank raised its surplus projections by US$120bil for this year, and US$140bil for next year, exceeding the government’s 2026 forecast of US$290bil.
Facilities investment is forecast to rise 7.9% this year, and 7% next year, while construction investment is likely to grow just 0.1% this year before expanding 2.7% in 2027 as chipmakers add production facilities.
Still, KDI’s outlook highlights the limited extent to which the chip windfall has spread through the broader economy.
Private consumption is seen rising 2.3% this year, only 0.1 percentage point more than the previous forecast as income gains remain concentrated in the chip sector and employment conditions weaken.
Consumer inflation is forecast to remain elevated at 2.7% this year as the earlier weakening of the won and improving demand add to price pressures, before slowing to 2.2% next year as oil prices stabilise. Both forecasts were unchanged from May.
The think tank warns the economy’s reliance on global chip demand could amplify volatility. — Bloomberg
