Economic Outlook KDI ECONOMIC OUTLOOK | UPDATE 2026.02 February 11, 2026
The Korean economy is projected to grow by around 1.9% in 2026, up from 1.0% in 2025, supported by strong semiconductor exports and a recovery in consumption.
- Consumer pricesare projected to rise by around 2.1%, following the previous year, as the recovery in consumption outweighs the pressure from lower international oil prices.
- Despite the ongoing economic recovery, the number of employed persons is projected to rise by about 170,000, down from an increase of 190,000 in the previous year, reflecting the continued decline in the working-age population.
Ⅰ. Current Economic Conditions
- □ The Korean economy has recently shown a gradual improvement in overall activity, led by the service sector.
- · GDP growth in the fourth quarter of last year remained in the mid-to-high 1% range, broadly in line with the previous quarter.
- · By sector, construction activity remained in contraction, and growth in manufacturing decelerated, while the services sector continued to improve.
- □ On the domestic demand side, consumption continued to recover, while investment remained sluggish.
- · Consumption exhibited a recovery trend, supported by government measures, cumulative interest rate cuts, and stronger real income growth.
- · Equipment investment declined amid weakness in non-semiconductor sectors. Construction investment contracted sharply, as the realization of orders was hindered by factors including the sluggish regional real estate market.
- □ Exports maintained a moderate pace of growth, underpinned by robust momentum in the semiconductor sector despite weakness in other industries.
- · Although exports to the U.S. remained subdued amid higher tariffs, strong semiconductor shipments supported export growth in other markets.
- · Improved terms of trade (export prices relative to import prices), supported by higher semiconductor export prices and lower crude oil import prices, helped widen the current account surplus, largely through the goods balance.
- □ Despite continued weakness in construction and in manufacturing excluding semiconductors, gradual improvement in services supported relatively stable trends in employment growth and inflation.
- · Nevertheless, widening sectoral disparities were reflected in the labor market, with the employment rate among individuals in their 20s declining.
- · Inflation has remained broadly stable around the target. While consumption is expected to continue improving, upward pressures on prices could intensify should the exchange rate appreciate going forward.
- □ The global economy has continued to expand at a moderate pace, supported by stimulus policy measures in major economies and expectations surrounding AI, despite U.S. tariff increases.
- · In the first half of last year, concerns over a global slowdown driven by higher U.S. tariffs were widespread. Since the second half, however, a surge in AI-related investment has led global economic conditions to evolve more favorably than initially anticipated.
- · Uncertainty surrounding U.S. tariff policy remains elevated, while the Chinese economy continues to face persistent downside pressures stemming from adjustments in the real estate market.
- □ Considering these domestic and external conditions, the Korean economy is expected to post a modest strengthening in growth, supported by strong semiconductor exports and a recovery in consumption, even as higher U.S. tariffs and a delayed recovery in construction investment weigh on activity.
- · While higher U.S. tariffs are expected to weigh on overall export conditions, sustained strength in semiconductor exports, supported by expectations surrounding AI, is expected to limit downside pressures on goods exports.
- · As the cumulative effects of interest rate cuts take effect, rising real income is expected to support the recovery in consumption.
- · Construction investment is likely to experience a delayed recovery, despite accumulated orders received, as project initiation remains constrained by weak regional real estate conditions and other factors.
- · Overall, economic growth this year is projected to remain in the high-1% range, exceeding the estimated potential growth rate in the mid-1% range and extending the ongoing improvement in economic conditions.
Ⅱ. Domestic Economic Outlook for 2026
1. Key External Assumptions
- □ The global economy is assumed to sustain a moderate pace of growth in 2026, supported in part by expectations surrounding AI.
- · The IMF has revised its forecast for global growth in 2026 upward to 3.3%, from 3.1% previously.
- · The World Semiconductor Trade Statistics (WSTS) organization has also substantially raised its projection for global memory semiconductor sales growth in 2026, to 39.4% from 17.8%.
- □ The import price of crude oil (Dubai) in 2026 is assumed at $64 per barrel, close to the previous assumption ($63), as recent price increases are expected to level off.
- □ The Korean won, in real effective exchange rate terms, is assumed to remain broadly stable at its recent levels.
2. Domestic Economic Outlook
- □ The Korean economy is projected to grow by around 1.9% in 2026, up from 1.0% in 2025, supported by strong semiconductor exports and a recovery in consumption.
- · Private consumption is expected to increase by around 1.7%, compared with 1.3% in the previous year, as the cumulative effects of interest rate cuts and improving income conditions continue to take hold.
- · Equipment investment is projected to expand by around 2.4%, up from 2.0% in the previous year, supported by strong growth in semiconductor-related investment despite weakness in other sectors.
- · Construction investment is projected to record only a modest increase of around 0.5%, as persistent weakness in regional real estate markets continues despite some improvement in construction orders received.
- · Exports are expected to grow by around 2.1%, down from 4.1% in the previous year, as higher U.S. tariffs weigh on export conditions. Nevertheless, continued strength in the semiconductor sector is expected to support a moderate pace of export growth.
- · The current account is projected to record a sizable surplus of around $150 billion, from around $123 billion a year earlier, reflecting the continued upturn in the semiconductor cycle.
- □ Consumer prices are projected to rise by around 2.1%, following the previous year, as the recovery in consumption outweighs the pressure from lower international oil prices.
- · Core inflation (excluding food and energy) is expected to rise to around 2.3%, compared with 1.9% in the previous year, reflecting strengthening consumption momentum.
- □ Despite the ongoing economic recovery, the number of employed persons is projected to rise by about 170,000, down from an increase of 190,000 in the previous year, reflecting the continued decline in the working-age population.
- · The unemployment rate is expected to stay at around 2.8 percent, in line with the previous year.
3. Risks to the Outlook
- □ Ongoing heightened uncertainty surrounding U.S. tariff policy remains a key downside risk to the Korean economy. A further escalation of trade tensions could weigh on economic activity.
- ·Uncertainty over U.S. reciprocal tariffs and tariffs on electronic products,including semiconductors, remains elevated. Higher tariffs, if imposed,would put downward pressure on Korea’s exports.
- ·If a downward adjustment in expectations surrounding AI leads to weaker semiconductor demand, the economic recovery could be constrained.
- ·At the same time, if the exchange rate, which has recently exhibited high volatility, moves higher, inflation could rise somewhat above the target (2%).
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