Korea Development Institute (KDI) said on the 13th that it will raise this year's economic growth forecast to 2.5% from 1.9%. The economy grew only 1.0% last year, but a full-fledged recovery will begin this year, it said. 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 publishes economic outlooks in the first and second halves each year and, when necessary, issues revised outlooks in between. In the most recent outlook in February, it had expected this year's economic growth to come in at 1.9%. In three months, it sharply raised the forecast to 2.5%.
This is higher than the Ministry of Economy and Finance's growth target (2.0%) and the forecasts of 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 that Korea's economic growth rate will be 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 rates will exceed potential growth." It added, "If semiconductor supply capacity expands rapidly, 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 February. It also expected a surplus of $210.0 billion next year. This year's export forecast was lifted to $927.3 billion from $746.7 billion. The export growth rate this year was previously forecast at 3.9%, but is now expected to reach 29%.
KDI also raised its forecasts for private consumption and facility investment. In February, it expected private consumption to rise 1.7% from a year earlier this year, but now projects a 2.2% increase. It said consumption will also 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 also sees a 2.4% increase next year.
◇ Prolonged Middle East war weakens construction... job gains also lose steam
However, this year's construction investment growth rate forecast was cut to 0.1% from 0.5%. KDI said, "With construction costs rising due to the Middle East war, the recovery (in construction) is being delayed, so this year's growth rate is minimal, but it will expand to 1.1% next year."
KDI expected consumer price inflation to reach 2.7% this year due to higher global oil prices stemming from the Middle East war. That is higher than the February forecast of 2.1%. It projected 2.2% for next year. KDI assumed Dubai crude would average $91 this year and fall to $82 next year.
As in the previous outlook, the number of employed people is expected to increase by 170,000 this year. It also projected an increase of 170,000 next year.
Jeong Gyu-cheol, head of KDI's economic outlook office, said, "Fiscal expenditure should focus on enhancing potential growth and supporting low-income vulnerable groups, and efforts to improve spending efficiency must continue." He added, "This phase of expansion will create inflationary pressure," and "We recommend responding by keeping interest rates a little higher than usual."