A state-run South Korean research institute has revised its economic growth projection for this year upward, surpassing the government's own estimate, as an anticipated boom in the global semiconductor industry, fueled by artificial intelligence, is expected to drive stronger exports and investment.
The Korea Development Institute (KDI) now expects the economy to expand by 3.2% in 2026, a significant upgrade from the 2.5% growth it had forecast in May. The revision is attributed to robust global demand for chips, which is anticipated to have a positive impact on the local economy.
This updated projection is higher than both the government's earlier forecast of 3% and the 2.6% figure released by the International Monetary Fund last month. The KDI's latest outlook comes as economists and policymakers worldwide adjust their growth forecasts, attempting to incorporate the surge in AI demand and evaluate the sustainability of this momentum.
The institute stated that the expansionary trend observed in the South Korean economy since the second half of last year is likely to persist, as AI demand continues to bolster semiconductor exports. This strength is expected to offset the higher import costs stemming from conflicts in the Middle East. The KDI projects semiconductor exports will grow by 8.7% this year and by a further 5% next year.
However, the KDI's report also underscores the limited extent to which the chip-driven boom is spreading to the broader economy. It forecasts private consumption will grow by just 2.3% this year, an increase of only 0.1 percentage points from its previous prediction, as income gains remain concentrated within the chip industry and the job market stays weak.
The think tank cautioned that South Korea's heavy reliance on global chip demand could amplify economic volatility. Growth could slow down rapidly if concerns over the return on AI investments curb spending or if domestic chipmakers lose global market share. Conversely, the rapid expansion of domestic production capacity is identified as a key upside risk.