Korea Institute of Finance: "Semiconductor Exports and Facility Investment Drive Economic Growth Rate Upgraded to 2.8% This Year"

2026 Revised Economic Outlook Seminar

Current Account Surplus to Exceed Double Last Year, Reaching USD 275 Billion

The Korea Institute of Finance has revised its forecast for this year's economic growth rate from the previous 2.1% to 2.8%. Despite rising oil prices heightening inflationary pressures, the swift execution of an extra budget has helped offset the impact of high oil prices, and the expansion of net exports and related facility investment are also contributing factors.

On May 11, during the 2026 Revised Economic Outlook Seminar held at the Bankers’ Club in Jung-gu, Seoul, the Korea Institute of Finance projected that Korea's real Gross Domestic Product (GDP) will grow by 2.8% this year. This upward revision reflects expectations for easing high oil prices, a recovery in construction investment due to semiconductor facility investment, and robust export performance centered on semiconductors. The new forecast is 0.7 percentage points higher than the 2.1% projection made in November last year.

However, this outlook is based on the International Monetary Fund (IMF) scenario, which assumes that the average annual international oil price will be USD 82 per barrel this year. The institute noted that if high oil prices persist, GDP growth could be limited. Kim Hyuntae, Head of the Macroeconomic Research Department at the Korea Institute of Finance, who delivered the presentation, stated, "In a negative scenario where the WTI oil price averages USD 100 per barrel, GDP growth would be 0.3 percentage points lower than the baseline scenario, and in a pessimistic scenario where it rises to USD 110, growth would decrease by 0.45 percentage points."

By sector, private consumption is expected to grow by 1.9% this year, 0.3 percentage points higher than the November forecast. Kim explained, "Private consumption increased by 2.6% year-on-year in the first quarter, and the consumer sentiment index also rose to 112.1 in February, marking the second-highest level since 2020. Although consumer sentiment weakened in the second quarter due to the Middle East war, support funds for high oil prices and the oil price cap are expected to prevent a significant slowdown in private consumption."

He added, "If high oil prices persist for an extended period or if overall price increases, especially in energy, spread further, the consumption capacity of households—particularly those in vulnerable groups—could deteriorate."

Although construction investment rebounded by 2.8% in the first quarter compared to the end of last year, the annual growth rate for this year is expected to be only 1.5%. There are concerns that the surge in oil prices caused by the Middle East war is creating supply difficulties for some construction materials, and that these costs will gradually be reflected in construction expenses, which could act as a downside risk. On the other hand, facility investment is projected to rebound by 4.7% this year. Despite the Middle East war, rapid expansion centered on the semiconductor industry is expected to help the sector recover from the downturn since 2022.

Total exports are forecast to increase by 6.3% this year, higher than last year's 4.2%. The institute explained that global investment in AI infrastructure and a boom in semiconductor exports will drive a significant rise in total exports. As for total imports, the expansion of production facilities related to semiconductor exports is expected to result in a 6.1% increase, mainly in intermediate goods, capital goods, and the services sector.

The consumer price inflation rate is expected to reach 2.4% in the first half and 2.7% in the second half, resulting in an annual average of 2.6%. The spike in oil prices due to the Middle East war has pushed the inflation rate to the upper end of the 2% range by mid-year, after which it is expected to gradually decline.

This year's current account surplus is projected to reach USD 275 billion, up 2.23 times from last year's USD 123.05 billion. The rapid rise in ICT export prices, which are linked to semiconductor prices, is improving Korea's terms of trade, and this is seen as a key factor behind the unusually large expansion of the goods balance surplus.

However, the institute assessed that upward price pressures caused by the Middle East war, uncertainty in the financial and foreign exchange markets, and factors related to the domestic economic recovery will make it difficult to lower the base interest rate. Instead, it warned that if the supply shock’s impact on prices persists and the semiconductor sector continues to boom, there is a possibility that the base rate could be raised.

The average yield on three-year government bonds this year is projected at 3.5%, a significant increase from last year's 2.6%. However, the inflow of foreign capital due to the inclusion in the World Government Bond Index (WGBI) is expected to partially ease upward pressure on interest rates. Kim commented, "With WGBI inclusion being phased in from April this year, an estimated KRW 70 trillion to KRW 90 trillion in funds is expected to flow in."

This content was produced with the assistance of AI translation services.