Korea Development Institute (KDI) said on the 13th that it will raise its economic growth forecast for this year to 2.5% from 1.9%. The economy grew only 1.0% last year, but it said the recovery will gain full momentum starting this year. KDI said, "As semiconductor exports surge this year, the current account will post an unusually large surplus," adding, "This year and next year are phases of economic expansion."
KDI released its "first-half 2026 economic outlook" on the day. KDI provides economic outlooks in the first and second halves each year and, if necessary, issues revised forecasts in between. In the most recent outlook in Feb., it expected this year's economic growth rate to come in at 1.9%. In three months, it sharply raised the forecast to 2.5%.
That is higher than the growth target of the Ministry of Economy and Finance (2.0%) and the projections by the International Monetary Fund (IMF, 1.9%) and the Organization for Economic Cooperation and Development (OECD, 1.7%).
◇ Semiconductor cycle better than expected... current account surplus forecast $148.8 billion → $239.0 billion
KDI projected Korea's economic growth rate at 3.1% in the first half of this year, 1.9% in the second half, and 1.7% next year. KDI said, "With strong semiconductor exports and improving domestic demand, this year's and next year's growth will exceed potential growth." It added, "If semiconductor supply capacity expands quickly, the growth momentum could strengthen further." According to the OECD, Korea's potential growth this year is estimated at 1.71%.
KDI also sharply raised this year's current account surplus forecast to $239.0 billion from $148.8 billion in Feb. It also expected a surplus of $210.0 billion next year. This year's export forecast was raised to $927.3 billion from $746.7 billion. The export growth rate for this year, previously projected at 3.9%, is now expected to reach 29%.
KDI raised its outlooks for private consumption and facility investment. In Feb., it saw private consumption rising 1.7% from a year earlier this year, but it now forecasts a 2.2% increase. It also said consumption will grow 1.5% next year. On stronger semiconductor investment demand, it raised this year's facility investment growth rate to 3.3% from 2.4%. It sees a 2.4% increase next year as well.
◇ Prolonged Middle East war drags on construction... job growth also slows
However, this year's construction investment growth rate forecast was cut to 0.1% from 0.5%. KDI said, "As construction costs rise due to the Middle East war, the (construction sector) recovery is delayed, leaving this year's growth minimal, but the growth rate will expand to 1.1% next year."
KDI projected consumer price inflation at 2.7% this year due to higher global oil prices from the Middle East war. That is up from the Feb. forecast of 2.1%. It expects 2.2% next year. KDI assumed Dubai crude will average $91 this year and fall to $82 next year.
The number of employed people is expected to increase by 170,000 this year, the same as in the previous outlook. It also said 170,000 jobs will be added next year.
Jeong Gyu-cheol, head of economic outlook at KDI, said, "Since the economy is currently in an expansion phase, the need for fiscal policy to stimulate the economy is not great." He added, "This expansion phase will create inflationary pressures," and "We recommend responding by keeping interest rates somewhat higher than usual."