SEOUL, July 14 (AJP) -South Korea's economy is expected to expand 3 percent this year - its fastest pace in five years despite the fallout from the Middle East conflict - thanks to an unprecedented semiconductor boom, the government said Tuesday, sharply lifting its growth target from 2 percent.
Nominal gross domestic product is projected to jump 12.3 percent this year, matching the strongest growth since 1996, as soaring semiconductor prices sharply improve South Korea's terms of trade and lift export prices, according to the Ministry of Finance and Economy's revised growth target and policy outline for the second half and 2027.
The ministry said the improvement would push gross national income per capita close to the psychologically important $40,000 threshold while strengthening government finances.
The upgraded forecast marks the strongest real GDP growth since the economy expanded 4.6 percent in 2021 during the post-pandemic recovery. Growth is expected to moderate to 2.2 percent in 2027, remaining slightly above the country's estimated potential growth rate.
Korea's current-account surplus is now forecast to reach a record $290 billion this year, more than double last year's $123.1 billion and far above the ministry's previous estimate of $135 billion, reflecting booming semiconductor exports.
The surplus is expected to remain robust at around $245 billion next year. Merchandise exports are projected to surge 40 percent this year before returning to a more sustainable 1 percent increase in 2027.
The ministry attributed the dramatic upgrade primarily to the AI-led semiconductor cycle, noting that global memory prices have risen far faster than expected, lifting Korea's export deflator and improving national income beyond what real output growth alone would suggest.
The headline strength nevertheless masks growing structural imbalances.
The ministry warned that growth remains heavily concentrated in semiconductors and other information technology sectors, while non-IT industries and regional manufacturing bases continue to lag.
Without broader diffusion of the chip boom, economic polarization between exports and domestic demand, IT and traditional industries, and the capital region and provincial economies could deepen further, it added.
It also worried stronger nominal growth could fuel financial market volatility by attracting large foreign capital inflows into Korean equities while pushing up the won, interest rates and asset prices. Those developments could increase borrowing costs for vulnerable households and small businesses despite the stronger overall economy.
Inflation is expected to average 2.6 percent this year, up from the ministry's previous estimate of 2.1 percent, as elevated oil prices linked to the Middle East conflict continue to feed into consumer prices before easing to 2.2 percent next year.
Employment conditions are forecast to soften despite stronger output, with payrolls expected to increase by 150,000 this year, below last year's 190,000, reflecting delayed recovery in construction and lingering effects of the conflict on hiring.
To prevent the semiconductor windfall from becoming a source of new economic imbalances, the government said the second-half policy agenda will focus on three pillars: maintaining macroeconomic stability after the Gulf war, raising the country's potential growth rate and addressing widening structural disparities.
The strategy includes strengthening supply-chain resilience and energy security, accelerating three flagship investment projects centered on semiconductors, artificial intelligence data centers and physical AI, promoting regional growth outside the Seoul metropolitan area, and pursuing structural reforms in labor markets, finance and regulation.
Additional tax revenue generated by the semiconductor boom will be directed toward younger generations, future growth industries, regional development and talent cultivation through a newly established Future Response Fund.
The government also pledged to continue measures to stabilize consumer prices by extending tariff cuts on selected imported food products, expanding agricultural and seafood discount programs, keeping public utility charges broadly unchanged in the second half, and maintaining targeted fuel subsidies if necessary as geopolitical risks persist.
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