Growth momentum shapes the latest economic forecast for South Korea, according to the Korea Development Institute’s new outlook. The state-run think tank raised its projections for both 2025 and 2026, signaling tentative confidence that domestic conditions are stabilizing after a prolonged slowdown.
The KDI now expects GDP to grow 0.9 percent this year, supported by 0.3 percent expansion in the first half and 1.5 percent in the second half. The revision reflects stronger semiconductor exports, rising household spending, and modest policy support, all contributing to improving growth momentum.
The institute anticipates 1.8 percent growth next year, improving slightly from its previous estimate of 1.6 percent. It said domestic demand should drive most gains because export activity will soften as global conditions weaken.
Jung Kyu-chul, the KDI’s director of economic outlook, said chip exports exceeded earlier expectations and continue lifting industrial output. He explained that expansionary fiscal measures under the new administration also reinforced the overall recovery phase.
The updated projection matches recent forecasts from the International Monetary Fund and the Bank of Korea, though it remains slightly below some private-sector estimates. Jung said the KDI remains cautious because temporary fiscal support boosted third-quarter numbers more than underlying fundamentals.
He noted that the fourth quarter may show a mild contraction, although the setback should remain temporary. He said concentrated government subsidies inflated earlier data, and that effect will now fade as spending normalizes.
The revision comes after the KDI cut its forecast several times this year, mainly because political instability and slowing global trade constrained investment. However, recent data shows the downturn easing as consumption, capital spending, and exports all climb.
GDP rose 1.2 percent in the third quarter from the previous quarter as households increased spending by 1.3 percent. Capital investment improved 2.4 percent, and exports grew 1.5 percent, helping the economy regain partial stability.
The KDI expects growth momentum to strengthen next year because consumers remain central to Korea’s recovery cycle. However, exports may rise only 1.3 percent in 2026, dropping from this year’s 4.1 percent gain as global tariff hikes and supply-chain shifts slow outbound shipments.
Lead economist Kim Ji-yeon warned that rising trade barriers and weak global demand will pressure Korea’s export-dependent sectors. She said higher U.S. inflation and weakening Chinese demand signal broader economic stress that Korea must monitor carefully.
Nevertheless, improved trade terms will likely support Korea’s current account, which should record a surplus near $103 billion next year. The KDI said steady semiconductor demand should help offset external volatility and maintain financial stability.
However, the institute stressed that the long-running depreciation of the Korean won presents major risks. The currency has stayed above 1,400 per dollar since October, raising import costs and pressuring inflation. Kim said further depreciation could push inflation above the current 2 percent range.
Because growth momentum is reappearing, the KDI urged the government to scale back expansionary fiscal spending. It warned that persistent deficits could erode fiscal credibility and raise long-term debt risks. Kim said fiscal policy must gradually normalize to prevent structural imbalances.
