South Korea's economic growth rate is expected to exceed 2%, with strong export growth becoming the main driving force

The government projects that South Korea’s economic growth rate will exceed 2% this year, showing some confidence in its economic outlook based on stronger-than-expected first-quarter growth and the momentum behind an export recovery.

At a press corps roundtable hosted by the Ministry of Economy and Finance in the Sejong Government Complex on the 11th, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said that the growth rate is expected to exceed 2% this year. His basis is that in the first quarter, the actual gross domestic product (GDP) grew 1.7% quarter-on-quarter, substantially exceeding market expectations, and that major investment banks have recently repeatedly raised their forecasts for South Korea’s economic growth. However, he explained that exactly how much it will exceed 2% still depends on the strength of the semiconductor industry recovery and the impact of external variables brought about by the Middle East war. The government plans to release more specific data when it publishes its economic strategy for the second half of the year in June.

The backdrop for the government’s upward revision of its growth outlook is an improvement in exports and foreign exchange conditions. Deputy Prime Minister Choo Kyung-ho said that thanks to favorable exports, the current account balance recorded the largest surplus in history in February and March. The current account is a comprehensive performance report of South Korea’s external transactions covering goods, services, and primary income; a widening surplus indicates that the country is earning more funds from overseas. He said that, based on the data for January and February, which can be compared internationally, South Korea’s current account balance ranking rose from 7th place globally to 5th, surpassing Japan and Italy. Regarding the won-to-U.S.-dollar exchange rate, which at one point surged into the 1,530 won range at the end of March and has recently fallen back into the 1,470 won range, he said the exchange rate is determined by the market, but added that there is no overall situation of a foreign exchange shortage in South Korea’s economy.

Regarding fiscal operations, the government indicated its intention to adjust the policy stance in the direction of enhancing growth potential while maintaining soundness. Deputy Prime Minister Choo Kyung-ho said that last year the government’s debt ratio was below the average of 38 developed countries, and the net debt ratio was only one-eighth of the average for developed countries. He also added that the International Monetary Fund (IMF) has continued to positively evaluate South Korea’s fiscal headroom and its efforts to maintain fiscal soundness. At the same time, he pointed out that if the country focuses solely on cutting spending, after mandatory expenditures, disposable spending would decline, weakening investment capacity, and ultimately undermining the tax base—potentially leading to a vicious cycle in which fiscal deficits expand. To prevent such problems, the government plans to allocate fiscal resources to areas needed to raise potential growth, ease polarization, and respond to changes in the population structure, while also implementing high-intensity structural adjustments to the spending mix. The government also clearly stated that it will not move toward loose fiscal policy.

In the second half of the year, policies to address supply chain reorganization after the Middle East war, energy security, and major industrial transformation are expected to become the core axis of the growth strategy. Deputy Prime Minister Choo Kyung-ho specifically previewed that new growth momentum leading into the post-semiconductor era will be identified. In addition, he emphasized that the formal integration of the artificial intelligence transformation (AX) and green transformation (GX) into manufacturing and industrial sites will make South Korea’s industries a global benchmark. This has been interpreted as meaning that the current growth rebound should not rely only on semiconductors and exports, but should shift toward changing the industrial structure itself. The pace of advancing this process may vary depending on future semiconductor market conditions, the situation in the Middle East, and exchange rate stability, but the government is likely to present more specific implementation plans in the second-half economic strategy to be released in June.