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The Korea Development Institute (KDI), a state-run think tank, has raised its economic growth forecast for South Korea this year to 3.2%, an upward revision of 0.7 percentage points in three months.
This adjustment follows an analysis showing that surging semiconductor exports and facility investments, driven by the global artificial intelligence (AI) boom, are strongly powering economic growth.
However, as growth has concentrated in the semiconductor sector—which has a low job-creation effect—the forecast for the increase in the number of employed persons this year has been significantly lowered to 110,000.
KDI pointed out that a divergence could emerge between the growth rate and the lived economy, while citing volatility in the semiconductor industry, such as concerns over the profitability of AI investments, as major macroeconomic risk factors ahead.
In its "August 2026 KDI Economic Outlook Update" released today, KDI raised its gross domestic product (GDP) growth forecast for this year from 2.5% projected in May to 3.2%.
This figure surpasses the projections of major domestic and international institutions.
The government has projected 3.0%, while the Bank of Korea, the Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF), and the Asian Development Bank (ADB) each forecasted 2.6%.
KDI also raised its growth forecast for next year by 0.5 percentage points, from 1.7% to 2.2%.
The upward revision of the growth rate was largely driven by the favorable global semiconductor market.
The forecast for merchandise export growth this year was raised by 4.1 percentage points from the previous estimate to 8.7%.
The facility investment growth rate was revised upward by 4.6 percentage points to 7.9%.
The current account surplus is estimated to record $359.7 billion this year and $356.2 billion next year.
These figures are more than $100 billion higher than the previous forecasts respectively.
This is also attributed to the sharp surge in semiconductor export values.
KDI explained that this is an unusually large figure compared to the typical annual level of around $100 billion.
Kim Mi-roo, head of the Macroeconomic and Financial Policy Research Department and director of the Economic Outlook Division at KDI, explained, "About 0.6 percentage points of the 0.7 percentage point upward revision in the growth forecast stems from the spillover effects of semiconductors themselves and facility investments. More than half of this year's 3.2% forecast is influenced by semiconductors and semiconductor-related impacts."
Despite the high economic growth forecast, improvements in the lived economy felt by households, such as private consumption and employment, are projected to remain modest.
This indicates that the fruits of growth are concentrated in the semiconductor industry, which has a low employment-generating effect, failing to sufficiently spread to household incomes.
The forecast for the increase in the number of employed persons this year was lowered by 60,000, from 170,000 to 110,000.
Kim Ji-yeon, head of forecasting coordination at KDI's Economic Outlook Division, analyzed, "Growth has concentrated in the semiconductor sector, but because the employment share of that sector is small, its impact on overall employment was limited. In particular, heightened uncertainties related to the Middle East conflict in the first half of this year caused companies to adopt a conservative stance on hiring."
The increase in the number of employed persons next year is projected to expand to 200,000, higher than this year.
KDI explained that this is due to the improvement in domestic economic conditions and the base effect resulting from this year's forecast being sharply reduced.
The forecast for private consumption growth this year was also raised by a mere 0.1 percentage point to 2.3%.
This is because the sluggishness in the construction sector continues and the rise in real wages remains at a low level.
Director Kim analyzed, "While we are seeing high growth backed by the semiconductor super-cycle, those fruits are not sufficiently spreading to the incomes of ordinary households through private consumption or employment. The spread of high growth into the lived economy remains sluggish."
The consumer inflation forecasts for this year at 2.7% and next year at 2.2% were maintained at previous levels.
This is because although the assumption for crude oil import unit prices was lowered from $91 to $86 per barrel, the delayed aftermath of the won's depreciation in the first half and demand pressures from economic recovery offset the oil price drop effect.
Core inflation (excluding food and energy) was maintained at the previous forecast of 2.5% for this year, while next year's forecast was raised by 0.1 percentage point to 2.4%.
KDI also expressed the opinion that, considering the high economic growth rate and inflation rate, the base interest rate should be maintained at the mid-2% level.
Director Kim stated, "Since the won't depreciation in the second quarter was relatively severe and oil prices were also high, there will likely be some lagged ripple effects. It is necessary to maintain the base rate at a level higher than the neutral rate, which is roughly in the mid-2% range."
Regarding the necessity of additional rate hikes, she said, "We will need to watch inflation indicators further. The Bank of Korea will make a sound judgment."
KDI selected future global semiconductor demand volatility as a major risk factor for the economy.
It pointed out that growth could slow down if global investment demand contracts due to concerns over AI investment profitability or if competition with competitor nations intensifies.
In addition, uncertainties surrounding U.S. tariff policies, geopolitical conflicts in the Middle East, and expanding financial market volatility were presented as downside risks.
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