Chip Exports and Capex Lift Korea Growth Outlook to 3.7%

Major institutions at home and abroad, including the Organisation for Economic Co-operation and Development, are raising their 2026 growth forecasts for South Korea above 3% because semiconductor exports, chip output and facility investment are lifting the economy more than expected. As the global artificial intelligence industry expands, chip exports have surged and investment by related companies has widened, pushing up expectations for an economy that had been projected to stay sluggish.

Forecasts from major institutions have jumped sharply in just a few months. The OECD raised its projection the most. On the 23rd, the organization put South Korea's 2026 growth rate at 3.7%, up 1.1 percentage points from the 2.6% it forecast in June and the largest upward revision among the Group of 20 economies. It also lifted its 2027 forecast to 2.6% from 1.9%, an increase of 0.7 percentage point. Compared with the 1.7% it projected in March, the outlook has been raised by 2 percentage points in six months. The OECD said strong export and output growth would drive this year's expansion, while next year exports would continue to lead growth with support from a gradual recovery in consumption.

The OECD said the spread of AI is supporting investment, output and trade not only in South Korea but worldwide, and raised its global growth forecast for this year to 2.9%, up 0.1 percentage point. It judged that economies are showing considerable resilience to external shocks such as the war in the Middle East as AI-related investment continues. It lowered its forecast for next year to 3.0%, down 0.1 percentage point.

The Asian Development Bank also raised its 2026 growth forecast for South Korea on the same day, to 3.2% from 2.6%. The ADB cited firm recent manufacturing indicators and rising demand for AI chips that is feeding through to export growth. It also pointed to expansionary fiscal policy and a gradual recovery in private consumption on the back of improved corporate earnings. The bank lifted its forecast for next year to 2.3% from 2.0%.

The Korea Development Institute last month raised its 2026 forecast to 3.2% from 2.5%, an increase of 0.7 percentage point. The Bank of Korea also lifted its projection for this year to 3.3% from 2.6% last month, and raised its forecast for next year to 2.9% from 2.1%, reflecting a judgment that the semiconductor cycle will run into next year.

Higher growth, however, is not translating directly into an improvement in conditions that households feel, because inflation is weighing on them. The OECD raised its forecast for South Korea's consumer price inflation this year to 3.0% from 2.6%, an increase of 0.4 percentage point, and lifted its forecast for next year to 2.7% from 2.2%, up 0.5 percentage point. It said the sharply higher growth outlook and a higher projection for international energy prices than at the time of the June forecast would drive prices up. Even so, South Korea's projected inflation for both years remains below the G20 averages of 4.1% and 3.6%.

The ADB the same day kept its inflation forecast for this year unchanged at 2.7%. It said upward price pressure from rising international energy prices and strong domestic demand would persist, but that government price stabilization measures would offset part of it. Next year, it expects inflation to hold at about 2.2% as energy price pressure eases and the effects of tighter monetary policy come through.

External variables still hang over the strong growth outlook. The OECD said international energy prices would gradually stabilize from the fourth quarter of this year, but flagged as key downside risks the possibility that energy prices keep climbing, that supply shocks arise from adverse weather such as El Nino, and that long-term government bond yields rise further. An early end to the war in the Middle East was presented as an upside factor. The OECD said the spread of AI could lift investment and output further, but that concerns about the profitability of related companies and their heavy reliance on leverage bear watching.