Think tank revises up S. Korea's 2026 growth outlook to 2.5 pct on robust exports

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South Korea's economy is projected to expand 2.5 percent in 2026, according to state-run think tanks, which have revised their growth forecasts upward on the back of robust semiconductor exports and recovering domestic demand. The Korea Development Institute (KDI) raised its outlook from 1.9 percent projected in February, while the Korea Institute for Industrial Economics & Trade (KIET) similarly lifted its estimate by 0.6 percentage point from a previous 1.9 percent.

Coverage Comparison

The upward revision was reported by Yonhap News Agency, which cited both the KDI and the KIET in separate articles. The KDI's assessment, released in mid-May, emphasized solid export growth driven by semiconductors despite a challenging business environment, including Washington's tariff policies. The KIET's projection, published in late May, attributed the upgrade to continued increases in exports and investment sparked by the semiconductor and IT sectors, along with the government's expansionary fiscal policy.

Both institutions acknowledged downside risks, particularly from the Middle East conflict, which has led to higher oil prices and potential production cost increases. The KDI, in its monthly economic assessments, used phrases such as "signs of recovery" in May and "gradual improvement" in June, reflecting concerns that adverse effects from the war could spill into other sectors.

The reports also included data on recent economic indicators: exports surged 53 percent in May and 48 percent in April from a year earlier, while industrial output rose 2.4 percent in April and 3.6 percent in March. Consumer prices increased 3.1 percent in May, accelerating from 2.6 percent in April.

Key Claims

• 2026 Growth Forecast: The KDI projects 2.5 percent expansion in 2026, up from 1.9 percent in its February forecast. The KIET also revised its estimate to 2.5 percent, a 0.6 percentage-point increase from its previous projection.
• Export Outlook: Yearly exports are likely to reach an all-time high of US$924.4 billion in 2026, rising more than 30 percent from last year, according to the KIET. The country is expected to enjoy an unprecedented trade surplus of $220 billion this year.
• Domestic Consumption: The KDI expects consumption to increase 2.2 percent in 2026, supported by government subsidy policies and a strong stock market, before rising 1.5 percent in 2027.
• Facility Investment: The KDI projects facility investment to grow 3.3 percent in 2026 and 2.4 percent in 2027, driven by the semiconductor industry. The KIET expects a 2.9 percent gain this year on improved liquidity and heavy investment in AI-related industries.
• Consumer Prices: The KDI forecasts consumer prices to rise 2.7 percent in 2026 due to higher crude oil prices, easing to 2.2 percent in 2027. Recent data showed a 3.1 percent rise in May and 2.6 percent in April.
• Middle East Risks: Both think tanks noted that a prolonged crisis in the Middle East could raise production costs and weigh on growth, particularly if the Strait of Hormuz is disrupted.
• Recent Indicators: Exports surged 53 percent in May and 48 percent in April, industrial output rose 2.4 percent in April and 3.6 percent in March, and retail sales increased 1.6 percent in April. Chip exports spiked 173.5 percent on-year in April to $31.9 billion.

Perspectives

• Korea Development Institute (KDI): The KDI raised its 2026 growth forecast to 2.5 percent, citing strong semiconductor exports and domestic consumption recovery, but cautioned that Middle East uncertainties and oil price pressures pose downside risks.
• Korea Institute for Industrial Economics & Trade (KIET): The KIET also lifted its projection to 2.5 percent, emphasizing stronger-than-expected investment and export growth from AI and semiconductors, while noting that U.S. tariff effects have not materialized as strongly as anticipated.