A South Korean state-run think tank stated on Wednesday that the country's economy is projected to expand by 2.5% in 2026, supported by robust growth in the semiconductor sector and a recovery in domestic consumption.

The Korea Development Institute (KDI) revised its 2026 economic growth forecast upward from the 1.9% projected in February. It noted that South Korea has maintained solid export growth driven by its semiconductor industry, despite facing various challenges including U.S. tariff policies.

The KDI indicated that, propelled by government subsidy programs, domestic consumption is expected to increase by 2.2% in 2026 and by 1.5% in 2027.

Boosted by the semiconductor industry, facility investment is forecast to grow by 3.3% in 2026 and by 2.4% in 2027.

Influenced by rising crude oil prices, consumer prices are anticipated to rise by 2.7% in 2026 before easing to 2.2% in 2027.

The KDI forecasts that the South Korean economy will grow by 1.7% in 2027.

The institute suggested that if South Korean chip manufacturers can rapidly expand production capacity, the pace of economic growth could accelerate further.

The KDI added, "With the sharp increase in semiconductor demand, the expansion of semiconductor production capacity is expected to promote stronger economic growth."

However, a prolonged crisis in the Middle East could elevate production costs and consequently restrain economic growth.

The KDI noted in its report, "As uncertainty surrounding the Middle East conflict remains high, a prolonged blockade of the Strait of Hormuz could drive up production costs across the entire economy."