"Semiconductor Boom Overwhelms Middle East Risks" KDI Makes Bold Upward Revision of 2024 Growth Forecast from 1.9% to 2.5%

KDI: "Korean Economy Entering Expansionary Phase"

Forecasts an Astonishing $240 Billion Current Account Surplus

The Korea Development Institute (KDI), a government-funded research institute, has significantly raised its forecast for South Korea's economic growth rate this year from the previous 1.9% to 2.5%, an upward revision of 0.6 percentage points. The analysis attributes this to a boom in semiconductor exports driven by soaring demand for artificial intelligence (AI), which is expected to boost the size of the Korean economy and lead to an unprecedented current account surplus.

According to the "2026 First Half Economic Outlook" released by KDI on May 13, this year's gross domestic product (GDP) growth rate is projected at 2.5%. This figure is 0.6 percentage points higher than the 1.9% forecast in the revised economic outlook last February, reflecting the much stronger-than-expected rise in exports, particularly in semiconductors. Compared to the forecast at the end of last year (1.8%), this marks a dramatic increase of 0.7 percentage points.

Jung Kyucheol, Director of the Macroeconomic and Financial Policy Division at KDI, stated, "Of the 0.6 percentage point upward adjustment in the growth rate forecast from 1.9% to 2.5%, the contribution from semiconductor exports far exceeds half—well over 0.3 percentage points."

KDI also noted, "A simultaneous surge in semiconductor prices and export volumes is greatly expanding the current account surplus, primarily through the goods balance. The 2.5% growth rate projected for this year exceeds our estimated potential growth rate (in the mid-1% range), indicating that the Korean economy is currently in an expansionary phase."

In particular, KDI forecasts that the current account surplus will reach an astonishing 240 billion dollars this year and 210 billion dollars next year. The explosive increase in semiconductor exports is improving income conditions, which in turn is forming a virtuous cycle that leads to further investment and consumption. Director Jung added, "The positive impact of semiconductors has more than offset the negative effect (-0.5 percentage points) of the Middle East war."

Domestic demand is also expected to show a gradual recovery. Private consumption is projected to grow by 2.2% this year, while facility investment is expected to increase by 3.3%, thanks to investment demand in the semiconductor sector. However, KDI recommended that, given lingering risks of rising oil prices due to the Middle East conflict, it is necessary to maintain flexible monetary policy and enhance the efficiency of fiscal expenditures to ensure price stability.