South Korea's economic growth rate outlook is revised upward, with strong semiconductor exports being the main driving factor

The Korea Economic Research Institute raised its forecast for this year’s economic growth rate to 2.7% on the 3rd, and judged that the trend of export recovery driving the overall economy is becoming more evident.

In a report titled “Reflections on Economic Strategies After the U.S.-Iran War” released that day, the institute revised its forecast for this year’s economic growth rate upward by 0.8 percentage points from 1.9% proposed in September of last year. This is 1.7 percentage points higher than last year’s growth rate of 1.0%. The institute explained that, after reassessing recent economic trends, it found that the momentum of export improvement, mainly driven by semiconductors, is stronger than expected.

The prosperity of semiconductors is seen as the core background for this upward revision. It is believed that the global semiconductor industry remains in a recovery phase, coupled with high oil prices pushing up export unit prices, increasing the likelihood of overall export growth for Korea. Accordingly, it is estimated that the trade surplus will expand from last year’s $77.4 billion to $152.2 billion this year, nearly doubling. Export growth positively impacts corporate performance, equipment investment, and employment conditions, becoming a direct factor in raising the forecast for economic growth rate.

Conversely, domestic demand may be relatively weak. Rising international oil prices will increase costs for households and businesses, and inflationary pressures will suppress consumer sentiment. However, the institute’s analysis suggests that large-scale government fiscal spending and the rapid preparation of supplementary budgets will to some extent prevent domestic demand from slowing down. Supplementary budgets generally refer to government fiscal injections to support consumption and investment when economic downward pressure intensifies.

At the same time, the institute remains cautious about external variables. Geopolitical risks are further escalating, and the possibility that U.S. political uncertainty could lead to additional tariff measures may weaken the current expectations of economic recovery. The Korea Economic Research Institute considers overcoming external uncertainties as the most important task for Korea’s economy, emphasizing the need to develop flexible growth strategies to respond to potential disruptions caused by the U.S.-Iran war, which could alter the global economic order and supply chain structure. Additionally, it recommends swiftly implementing supplementary budgets to boost domestic demand vitality and broadening export structures that focus on specific countries and products to build a stable supply chain. Under this trend, the actual growth path may depend on whether the momentum of export recovery can be sustained and whether the government can quickly strengthen domestic demand and respond to external risks.