"If Semiconductors Outperform... Korea Could See 3.5% Growth in 2026 and 2027"—Bank of Korea Scenario Analysis

Bank of Korea Releases "August 2026 Economic Outlook"

Optimistic Scenario: "Further Upside in Semiconductor Export Growth"

Export Volume Could Increase by Around 20% This Year and by the Mid-to-High Teens Next Year

If semiconductor exports grow at a pace beyond the Bank of Korea's previous projections this year, Korea's annual economic growth rate could reach as high as 3.5% in both 2026 and 2027.

On the 27th, the Bank of Korea released its revised economic outlook, forecasting economic growth of 3.3% for 2026 and 2.9% for 2027. This outlook is based on robust semiconductor export growth, underpinned by the continued expansion of global artificial intelligence (AI) infrastructure investment. However, as production capacity gradually increases, the rate of growth in semiconductor export volume is expected to ease, from the high teens (in percentage terms) in 2026 to the low-to-mid teens in 2027.

Nevertheless, both upside and downside risks remain significant for the semiconductor sector. While there are forecasts that the semiconductor cycle may outperform expectations, there are also growing concerns about a possible slowdown in the pace of AI investment by big tech companies.

According to the Bank of Korea, under an optimistic scenario in which the semiconductor export uptrend expands further, Korea's economic growth rate could reach 3.5% in both 2026 and 2027. This represents an upward revision of 0.2 percentage points for 2026 and 0.6 percentage points for 2027 compared to the baseline forecast. The Bank of Korea explained, "Assuming stronger-than-expected semiconductor demand driven by the proliferation of agentic AI and diversification of AI business models, along with rapid production increases enabled by new domestic capacity and improved yields, the semiconductor export volume would likely grow by around 20% in 2026 and by the mid-to-high teens in 2027." In this scenario, the inflation rate would be only marginally affected for 2026 (2.7%), but it is estimated to rise by 0.2 percentage points to 2.5% in 2027 compared to the baseline.

Conversely, if the growth trend eases further under a pessimistic scenario, the economic growth rate would be 3.2% in 2026 and 2.5% in 2027. This scenario assumes a significant slowdown in big tech's AI investment due to delayed realization of AI returns and a heavier debt burden, with long-term supply contracts partially cushioning weaker demand. The Bank of Korea stated, "In this case, the growth in semiconductor export volume would moderate to the mid-teens in 2026 and to around 10% in 2027." It added, "The inflation rate would remain largely unaffected in 2026, but drop by 0.1 percentage points in 2027, reaching 2.2%."

Meanwhile, when considering the Middle Eastern situation as a key variable, if tensions are resolved swiftly, the anticipated economic growth rate is 3.4% for 2026 and 3.1% for 2027. This scenario assumes progress in U.S.-Iran negotiations during the third quarter, easing military tensions and prompting a swift recovery in navigation through the Strait of Hormuz. International oil prices are assumed to decline from USD 76 per barrel in the second half (USD 82 average for 2026) to USD 63 in 2027. Under this assumption, inflation would also feel downward pressure, estimated at 2.6% for 2026 and 2.0% for 2027, a respective decline of 0.1 and 0.3 percentage points.

If, on the other hand, the deadlock persists, Korea's growth rate will be 3.2% in 2026 and 2.6% in 2027. This assumes prolonged U.S.-Iranian negotiations that only make progress later in 2027, while regional military tensions remain elevated throughout 2026. Under this scenario, recovery of the Hormuz Strait's passage is delayed, and supply via alternative routes faces some disruption, pushing international oil prices up to USD 95 in the second half of 2026 (annual average: USD 91), before easing to USD 85 in 2027 as negotiations progress. In this case, inflation is forecast to rise to 2.8% in 2026 and 2.7% in 2027.

Regarding the baseline outlook for the Middle East, it is assumed that uncertainties surrounding U.S.-Iran negotiations will persist, but partial resumption of passage through the Strait of Hormuz in the second half, along with expanded oil supply via alternative routes and non-Middle Eastern countries, will moderately ease supply chain disruptions. The international oil price (Brent) is assumed to decline gradually to USD 84 in the second half of 2026 (annual average: USD 86) and to USD 74 in 2027.

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