Semiconductors Weather Middle East Shock... Market Sentiment on Korean Economy Shifts (Comprehensive)

IMF and ADB Raise Growth Forecasts to 2.6%
Driven by Strong Semiconductor and AI Exports
Average Forecast by Eight Global Investment Banks Surpasses 3% for the First Time

As major domestic and international institutions have successively raised their economic growth forecasts for South Korea this year, market sentiment toward the country is shifting rapidly. The common factors cited for these upward revisions include robust semiconductor exports, expanding investment in artificial intelligence (AI), and stronger-than-expected growth in the first quarter.

Containers piled up at Pyeongtaek Port, Gyeonggi Province on the 1st. Photo by Yonhap News

According to the Ministry of Economy and Finance on July 9, the Asian Development Bank (ADB) announced in its "Asian Economic Outlook" released on July 8 (local time) that it has raised South Korea's economic growth rate for this year to 2.6%, up 0.7 percentage points from its April projection. The forecast for next year was also increased by 0.1 percentage points to 2.0%. The ADB predicted that expanded exports driven by global AI demand will be a key factor in South Korea's economic growth both this year and next year. The ADB projected South Korea's inflation rate this year and next year at 2.7% and 2.2%, respectively, representing upward revisions of 0.4 percentage points and 0.2 percentage points compared to the April outlook. This revision reflects the impact of rising international energy prices.

The International Monetary Fund (IMF), in its July World Economic Outlook released the previous day, also revised its forecast for South Korea's economic growth rate this year from 1.9% to 2.6%, an increase of 0.7 percentage points compared to April. This is the largest upward revision among the 30 major countries included in the report. The IMF assessed South Korea as a leading net exporter of AI hardware and attributed the stronger-than-expected growth to robust exports of semiconductors and AI-related products. The forecast for next year was also raised from 2.1% to 2.5%, the highest among advanced economies.

Previously, the Organisation for Economic Co-operation and Development (OECD) also raised its forecast for South Korea's economic growth rate this year by 0.9 percentage points to 2.6% in its "OECD Economic Surveys: Korea 2026," noting that the country continues to show signs of recovery despite martial law and the Middle East war. The Ministry of Economy and Finance explained that this was the largest increase among the G20 nations. The OECD projected a growth rate of 2.6% and forecast next year's growth at 1.9% and inflation at 2.2%. In May, the Bank of Korea also raised its growth forecast for this year by 0.7 percentage points to 2.6%.

Even more optimistic projections are emerging in the private financial market. According to the International Financial Center, as of the end of June, the average economic growth forecast for South Korea by eight major overseas investment banks (IBs) stood at 3.0% for this year—the first time the average has surpassed the 3% mark. JP Morgan raised its forecast to 3.7%, Citi to 3.5%, and HSBC (2.8%), Goldman Sachs (2.7%), and Barclays (2.7%) also revised their forecasts upward. Some institutions even projected growth close to 4%. The UK’s Capital Economics suggested the possibility of 4.0% growth, while Korean Re projected 4.1%.

In the market, there is speculation that the Bank of Korea may implement further upward revisions if strong semiconductor-driven export performance continues. The government is scheduled to release revised forecasts in its economic growth strategy for the second half of the year next week.

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