A South Korean national think tank has significantly raised its economic growth forecast for this year, attributing the export surge to an artificial intelligence-driven semiconductor supercycle, while simultaneously warning of significant structural concerns behind the impressive data.
The Korea Institute for Industrial Economics and Trade (KIET) released its "Economic and Industrial Outlook for the Second Half of 2026" report on Tuesday, revising its forecast for South Korea's real GDP growth this year from 1.9% in November last year to 2.5%, an upward adjustment of 0.6 percentage points.
The report predicts that driven by surging demand for semiconductors and ICT products fueled by AI infrastructure construction, South Korea's total exports this year will increase by 30.3% year-on-year, reaching a record $924.4 billion. The annual trade surplus is expected to hit a historic high of $219 billion.
KIET President Kwon Nam-hoon stated that the upward momentum in exports and investment, centered on AI and semiconductors, is far stronger than the downward pressure from the Middle East situation. The actual impact of U.S. tariff policies is also lower than previously expected. He also cautioned that if semiconductor and ICT exports are excluded, South Korea's export growth this year would be only 1.7%. "We should not be intoxicated by the prospect of record-high exports and trade surpluses; we must continue to actively promote forward-looking investment."
Semiconductor Supercycle as the Primary Growth Engine KIET's analysis shows that the strong performance of semiconductors, driven by the AI revolution, has contributed up to 1.0 percentage points to South Korea's real GDP growth. In contrast, the Middle East crisis triggered by U.S.-Iran tensions has dragged growth down by approximately 0.4 to 0.5 percentage points. The net effect remains positive after offsetting these factors.
The report forecasts that total exports this year will increase by $215.1 billion compared to last year. South Korea's annual exports first surpassed the $700 billion mark in 2025. If they reach $924.4 billion as expected this year, South Korea is expected to surpass the Netherlands ($989.2 billion), which ranked fourth globally in exports last year, and become the world's fourth-largest exporter.
Regarding equipment investment, KIET expects growth of 2.9% this year, primarily benefiting from improved liquidity for large enterprises and substantial capital expenditures in advanced industries related to AI, with the semiconductor and automotive sectors being the main drivers.
Consumption and Stock Market Strengthen in Tandem On the domestic demand front, KIET projects private consumption will grow 2.2% year-on-year this year, an upward revision of 0.9 percentage points from the previous forecast, mainly supported by government policies and the strong performance of the domestic stock market.
The Korea Composite Stock Price Index (KOSPI) has risen approximately 90% year-to-date, making it the best-performing major global stock index.
In the first quarter of this year, South Korea's real GDP grew 1.7% quarter-on-quarter, marking the fastest quarterly growth rate in nearly five and a half years, laying a relatively solid foundation for the full-year economic outlook. KIET's 2.5% growth forecast aligns with an independent prediction previously made by the Korea Development Institute (KDI).
Structural Concerns: Pressure on Industries Beyond Semiconductors Despite the impressive macro data, KIET clearly pointed out that the strong overall performance is largely the result of the semiconductor industry's "lone charge," while the situation for other industries is not optimistic.
The automotive industry is expected to continue facing multiple pressures, including high oil prices and uncertainty surrounding U.S. tariffs, with both exports and production facing downward pressure. The refining industry, affected by unstable crude oil supply, is projected to see a significant 21.1% decline in annual production. The steel and petrochemical industries are unlikely to see a significant recovery in the short term due to global overcapacity and weak demand.
Kwon Nam-hoon also noted that a considerable portion of the current favorable macro indicators stem from price effects, and investors need to exercise caution when interpreting related data. The evolving situation in the Middle East remains one of the primary downside risks facing the South Korean economy.