The South Korean government has raised its economic growth and inflation forecasts for this year, citing robust semiconductor exports and fiscal stimulus measures.
The Ministry of Economy and Finance stated on Tuesday that growth in Asia's fourth-largest economy is accelerating, driven by the ongoing semiconductor boom and policy measures such as a supplementary budget intended to cushion the impact of Middle East conflicts.
In its semi-annual outlook report, the ministry projected that gross domestic product (GDP) will expand by 3.0% in 2026, an increase from the 2.0% forecast made in January. This compares to a growth rate of 1.1% last year.
The export-oriented economic recovery is being propelled by South Korea's pivotal role in the global artificial intelligence (AI) supply chain, benefiting from strong shipments by leading chipmakers Samsung Electronics and SK Hynix. The government unveiled a massive investment plan for the semiconductor sector in June, though analysts caution that the recovery remains uneven.
In the same report, the Ministry of Economy and Finance indicated it will intensify efforts to boost chip production, expand AI data centers, and foster the physical AI industry to maintain the nation's technological lead over competitors.
Markets will be closely watching the Bank of Korea's meeting later this week.
Most analysts anticipate that the central bank will raise its benchmark interest rate on Thursday to initiate a gradual policy tightening cycle, as inflation remains well above the 2% target. The persistent weakness of the Korean won may be a focal point, as its depreciation has kept inflation elevated despite some retreat in oil prices.
The case for interest rate hikes in South Korea is strengthened by the weak won, a rebound in household debt, and the continued rise in Seoul property prices.
In its report, the finance ministry now expects overall consumer inflation to average 2.6% this year, higher than the previous estimate of 2.1%.
The ministry noted that while inflation is projected to slow in the second half of 2026 as oil prices retreat with easing geopolitical tensions, uncertainty remains regarding energy and agricultural product prices due to the fragile Middle East peace process and weather conditions.
The ministry stated that economic growth and inflation are likely to moderate next year, forecasting both GDP growth and inflation to be 2.2% in 2027.
It added that exports will remain the primary driver of economic growth this year and are expected to surge significantly, supported by sustained strong demand for semiconductors.
The ministry also projected that South Korea will post a record current account surplus of $290 billion in 2026, far exceeding the previous forecast of $135 billion.
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