The government said on the 9th it will raise this year's economic growth forecast to 2.0% from 1.8%. The forecast is the target the government aims to reach through policies including fiscal and tax measures. The government said it will again boost domestic demand this year through expansionary fiscal policy, following last year.
On the day, the Ministry of Economy and Finance announced the 2026 economic growth strategy. It is the first annual economic policy direction since the launch of the Lee Jae-myung administration. In the new government economic growth strategy in Aug. last year, the government expected the economy to grow 0.9% last year and 1.8% this year. This time, however, it revised them up by 0.1 percentage point and 0.2 percentage point to 1.0% for last year and 2.0% for this year.
To avoid growth staying in the 1% range for a second straight year, the government said it will again actively inject fiscal resources this year to spur consumption, investment, and exports. This year's government budget is 727.9 trillion won, up 8.1% from a year earlier. It topped 700 trillion won for the first time ever. The government also said it will supply record amounts of 70 trillion won and 633.8 trillion won through public institutions and policy finance institutions, respectively.
◇ Semiconductors to lead domestic demand and exports
The government predicted that, as in last year, the semiconductor industry will drive Korea's economic indicators this year. With global semiconductor demand rising, export unit prices for Samsung Electronics and SK hynix semiconductors are on an upward trend. Accordingly, the government expected the current account surplus to increase from $118 billion last year to a record $135 billion this year. It also expects terms of trade to improve as international oil prices fall. The government projected exports would rise 3.8% last year, then expand their growth rate to 4.2% this year.
With corporations' earnings improving, the government analyzed that this year's private consumption growth rate will be 1.7%, higher than last year's 1.3%. A Ministry of Economy and Finance official said, "As employment conditions improve, real purchasing power will increase." The number of employees in manufacturing and construction decreased compared to the previous year throughout last year on a monthly basis. However, the decline is expected to narrow this year. The government also said the effects of expansionary fiscal policy and four cuts totaling 100 bp (1 bp = 0.01%) to the benchmark rate in 2024–2025 will show up this year.
Construction investment, which fell 9.5% last year, is expected to increase 2.4% this year as corporations' construction of semiconductor plants gets into full swing, the government analyzed. A large increase in the budget for social overhead capital (SOC) is also expected to help the construction market recover. This year's SOC budget is 27.7 trillion won, up 9.1% from a year earlier. The budget size is the largest in four years since 2022 (28 trillion won). The government projected the facilities investment growth rate would be 2.1% in both last year and this year.
◇ Number of employed likely to increase by only 160,000
The government predicted the number of employed will increase by 160,000 this year, a smaller rise than last year's 190,000. Even as it expects domestic demand and exports to recover, it does not see the job market improving significantly. The government projected that while the number of employees in services increased by 500,000 last year, the increase could narrow this year.
Consumer price inflation is expected to be 2.1% in both last year and this year. The government projected the average international oil price will fall from $69 per barrel last year to around $62 this year.
Meanwhile, the government cited the following as factors adding uncertainty to the economy this year: ▲ the full impact of U.S. tariff impositions ▲ continued slump in the petrochemical and steel institutional sectors ▲ a slump in regional dwellings markets due to accumulated unsold units.