GDP Booms, But Soaring Inflation and Falling Employment Undermine Gains [Second Half Growth Strategy]

Although macroeconomic indicators such as growth rate, national income, and current account—driven by a semiconductor boom led by Samsung Electronics and SK hynix—are pointing to a period of prosperity, employment is declining and inflation is expected to rise. The structural vulnerability, in which the benefits of growth are concentrated in one area, remains an unresolved issue.

Employment Growth Turns Negative... Mounting Inflation Concerns

In the 'Second Half Economic Growth Strategy for 2026' announced on July 14, the government projected that the number of employed persons would increase by only 150,000 this year. This is a significant slowdown compared to the previous forecast of 160,000 and marks a sharp drop from last year’s 190,000 increase. Despite the government's all-in focus on capital-intensive semiconductor-driven growth to achieve a 3% rebound in the growth rate, concerns are mounting about jobless growth in reality. The government explained that the semiconductor industry has a relatively low employment induction coefficient, which means the effect on job creation is limited, and thus lowered its employment forecast by 10,000 compared to previous estimates.

The government also forecast this year’s consumer price inflation at 2.6%, with core inflation (excluding food and energy) projected to be in the low to mid-2% range. If the risk of renewed Middle East conflict escalates into a shock of high oil prices, inflationary pressure could intensify, making the defense of people’s livelihoods a major government challenge in the second half of the year. The government stated, "While declining international oil prices are expected to temper the consumer price inflation trend, uncertainty remains due to potential volatility in energy and agricultural product prices stemming from Middle East war negotiations and weather conditions." Private consumption is expected to improve to 2.0% from last year’s 1.5%, which was dampened by instability such as martial law and impeachment, though high inflation and slow employment growth are hampering the recovery in domestic demand. Kim Sang-bong, professor of economics at Hansung University, pointed out, "If the impact of high inflation continues into the second half due to the Middle East situation, household consumption capacity could contract."

Construction Investment Recovers to Positive After 5 Years, But Growth Remains Weak

With semiconductors leading overall exports, the current account is projected to post a surplus of 290 billion dollars this year—a historic high and a significant increase from last year’s 123.1 billion dollars. Yoo Byung-hee, Director-General for Economic Policy at the Ministry of Economy and Finance, stated, "From January to May, the current account recorded the biggest surplus on record, and we expect it will surpass last year’s record high surplus."

The most notable figure among the government’s projections is for construction investment. The government expects construction investment, which shrank by 9.7% last year, to shift to 0.2% growth this year—a return to positive territory after five straight years of recession since 2021. The slight increase is attributed to robust investment in semiconductors and the expansion of the social overhead capital (SOC) budget, ushering in a recovery phase. However, given last year’s base effect of -9.7%, the intensity of the recovery is expected to remain very weak. Facility investment, which saw only a 1.5% increase last year, is also expected to improve to 5.0% this year, driven by robust investment in semiconductor manufacturing equipment.

Growth Target Rises from 0% Range in First Year to 3% Just One Year Later

If the government’s forecast holds true, the growth rate—which slumped to 1% last year—will rebound sharply to 3% this year. However, achieving a 3.0% growth rate does not mean a structural rebound in the declining trend of potential growth. The Organisation for Economic Co-operation and Development (OECD) predicts that Korea’s slow economic growth will become entrenched, with potential growth falling from 1.66% this year to 1.46% in the second half of next year. The semiconductor boom may be boosting this year’s growth rate, but it does not mean the structural limitations of the Korean economy have been resolved. The government says it will foster new industries to revive potential growth after the semiconductor boom, but to become the world’s fourth-largest exporter as envisioned, the weakened fundamentals of traditional export sectors—which have shown negative growth—must be urgently strengthened through structural reforms.

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