South Korea forecasts 2026 economic growth at 5-year high on AI chip boom

[SEOUL] South Korea pledged on Tuesday (Jul 14) to swiftly advance artificial intelligence investments to bolster economic performance, as it raised its 2026 growth forecast to a five-year high of 3 per cent on the back of a global semiconductor boom.

In semi-annual economic policy plans released earlier, the finance ministry projected this year’s economic growth at 3 per cent, the strongest since 2021 and up from the previous forecast of 2 per cent as well as last year’s 1.1 per cent pace.

The ministry said it would push policies aimed at three key goals, including lifting the economy’s potential growth rate to 3 per cent from an estimated level below 2 per cent.

As part of that effort, the government will fast-track three “mega projects” unveiled last month covering semiconductor, AI data centre and physical AI investments, the ministry said.

Earlier this week, the government said it would increase 2027 budget spending by at least 10 per cent to more than 800 trillion won (US$532.73 billion), prioritising the mega projects and drawing support from stronger tax revenues from the semiconductor sector.

“While robust economic indicators, such as exports, driven by a semiconductor boom are clearly opportunity factors, there remain tasks that our economy needs to overcome at the same time,” Vice-Finance Minister Lee Hyoung-il said.

Asia’s fourth-largest economy delivered its strongest growth in nearly six years last quarter, driven by booming chip exports amid global surge in AI investment.

The ministry also set targets of making South Korea one of the world’s four largest exporters and raising gross national income per capita to US$50,000, from an expected US$40,000 this year. The country currently ranks among the world’s top five exporters.

It pledged measures to counter persistently high inflation, a weak currency and elevated bond yields linked to the Middle East conflict, including fuel price caps, extended foreign-exchange regulatory easing and low-cost policy loans in the second half of the year.

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Inflation was forecast at 2.6 per cent for 2026, up from the previous 2.1 per cent seen in January, amid high oil prices. That would be faster than the 2.1 per cent pace in 2025 and the quickest since 2023.

For 2027, the ministry forecast economic growth at 2.2 per cent and inflation at 2.2 per cent. REUTERS