Forecasts have begun to predict that Korea's economic growth rate will reach 3% this year. In the early days of the Middle East war, there were concerns that even 2% annual growth would be hard to guarantee, but sentiment shifted after the surprise first-quarter growth announcement driven by strong semiconductors.
◇ '1.7–2%' forecast → after late April, 'high 2%–3%'
On May 4, according to Bloomberg's compilation, JPMorgan Chase projected that Korea's growth rate this year will reach 3%. That is up 0.8 percentage points (p) from its previous forecast of 2.2%.
Recent projections for Korea's growth this year from domestic and overseas analysis institutions are generally clustered in the high 2% range. ▲ Citigroup (2.2→2.9%) ▲ Capital Economics (1.6→2.7%) ▲ BNP Paribas (2.0→2.7%) ▲ Goldman Sachs (1.9→2.5%) ▲ ANZ (2.0→2.5%) ▲ Barclays (2.0→2.4%) ▲ Nomura (2.3→2.4%). Hyundai Research Institute also revised its "2026 revised economic outlook" on the 3rd, raising growth from 1.9% (September last year) to 2.7%.
This is quite different from the projections released late last year and right after the Middle East war broke out. The government set a 2% growth target in its early January economic growth strategy this year, and the Bank of Korea raised its forecast in February from 1.8% to 2%. The Korea Development Institute (KDI), ASEAN+3 Macroeconomic Research Office (AMRO), and International Monetary Fund (IMF) projected 1.9%. The Organization for Economic Cooperation and Development (OECD) in March even lowered its original 2.1% projection to 1.7%.
◇ Surprise first-quarter GDP growth, strong exports in April as well… war and inflation are variables
The surprise first-quarter growth announced on the 23rd of last month was the trigger. Real gross domestic product (GDP) growth in the first quarter was 1.7%, the highest in 5 years and 6 months since the third quarter of 2020 (2.2%). Strong exports centered on "semiconductors" and better-than-expected domestic demand supported the gains. All industrial activity indicators—industrial production, consumption, facility investment, and construction completed—rose together in the first quarter, the first time since the second quarter of 2023.
The export boom continued in April, when the Middle East war was in full swing. Exports set a new record by exceeding $80 billion for two consecutive months for the first time ever in March–April. The trade balance ($23.77 billion surplus) was the highest ever for an April, marking a surplus for 15 straight months since February last year. Semiconductor exports, up 173.5% from a year earlier, led the gains.
Even if the growth rates in the remaining second to fourth quarters are flat from the previous quarter, calculations show the annual growth rate would reach 2.4%. The government believes that if it can just fend off "negative growth" in the second quarter, it can hold the line to some degree, and it expects the "high oil price damage support payments," which began to be distributed through a supplementary budget, to play that role.
However, the "prolonged war" and "inflation" are variables. If a U.S.-Iran war develops into a worst-case scenario or international oil prices surge again, the upward momentum in growth could quickly reverse. If higher oil prices feed into consumer prices, it would erode household real purchasing power and could weaken the domestic demand recovery. It is also a risk factor that the recent export and growth strength leans heavily on semiconductors. The manufacturing production growth rate (3%) in the first quarter was the largest in about five years, but excluding semiconductors, the growth rate was only 0.2%.
The government plans to present revised annual projections in its "second-half economic growth strategy" around late June.