Think tank: Driven by the chip supercycle, South Korea’s exports are expected to surge by 30% in 2026.

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South Korea's national think tank has significantly raised its economic growth forecast for this year, attributing the export surge to an AI-driven semiconductor supercycle, but at the same time warning that there are obvious structural concerns behind the impressive data.

The Korea Institute for Industrial Economics & Trade (KIET) released its "Economic and Industrial Outlook for the Second Half of 2026" report on Tuesday, raising South Korea's real GDP growth forecast for this year from 1.9% (estimated last November) to 2.5%, an increase of 0.6 percentage points.

The report predicts that, driven by soaring demand for semiconductors and ICT products related to AI infrastructure construction, South Korea's total exports this year will increase by 30.3% year-on-year, reaching a record $924.4 billion, with the annual trade surplus poised to reach a historic high of $219 billion.

KIET President Kwon Nam-hoon stated that the upward momentum of exports and investment centered on AI and semiconductors is much stronger than the downward pressure from the Middle East situation, and the actual impact of US tariff policies is also less than previously expected. He also noted that if semiconductor and ICT exports are excluded, South Korea's export growth this year would be only 1.7%, "We should not become complacent with record highs in exports and trade surplus but must continue to pursue proactive and forward-looking investments."

Semiconductor Supercycle Becomes the Biggest Growth Engine

KIET's analysis shows that the strong performance of semiconductors driven by the AI revolution has boosted South Korea's real GDP growth rate by up to 1.0 percentage point, while the Middle East crisis triggered by a US-Iran war has dragged down growth by about 0.4 to 0.5 percentage points. Even after offsetting these factors, the net effect is still positive.

The report estimates that this year's total exports will increase by $215.1 billion compared to last year. South Korea's annual exports exceeded $700 billion for the first time in 2025; if this year’s exports reach the predicted $924.4 billion, South Korea will likely surpass the Netherlands ($989.2 billion) — last year’s fourth-largest global exporter — to rank among the world’s top four exporting countries.

In terms of equipment investment, KIET expects growth of 2.9% this year, mainly benefiting from improved liquidity among large enterprises and massive capital spending in AI-related advanced industries, with the semiconductor and automotive sectors as main drivers.

Consumption and Stock Market Strengthen Simultaneously

On the domestic demand side, KIET predicts that private consumption will increase by 2.2% year-on-year this year, 0.9 percentage points higher than its previous forecast, mainly driven by government policy support and robust domestic stock market performance.

The Korea Composite Stock Price Index (KOSPI) has risen approximately 90% so far this year, becoming the best performing major stock index in the world.

In Q1 this year, South Korea’s real GDP grew by 1.7% quarter-on-quarter — the fastest pace in nearly five and a half years — laying a solid foundation for the annual economic outlook. KIET’s 2.5% growth forecast is consistent with an earlier independent projection by the Korea Development Institute (KDI).

Structural Concerns: Pressure Outside Semiconductors

Despite the glowing macro data, KIET made it clear that the strong overall performance is largely the result of the semiconductor industry’s “one-horse race”, while other industries are not optimistic.

The automotive industry is expected to continue facing multiple headwinds such as high oil prices and uncertainty surrounding US tariffs, with both exports and output under downward pressure. The refining industry, affected by unstable crude supply, is expected to see a sharp 21.1% drop in annual output. The steel and petrochemical industries are unlikely to see a clear recovery in the short term due to global overcapacity and weak demand.

Kwon Nam-hoon also pointed out that a substantial portion of the currently favorable macro indicators comes from price effects, and investors should exercise caution when interpreting relevant data. Continued developments in the Middle East remain one of the primary downside risks facing the Korean economy.

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