The Korea Development Institute (KDI) has significantly raised its economic growth forecast for South Korea this year from 2.5% to 3.2%. Of this increase, 0.6 percentage points are attributed to the direct and indirect effects of the semiconductor boom, including exports and facility investments.
In its revised economic outlook released on August 19, KDI projected that the country's gross domestic product (GDP) would grow by 3.2% this year and by 2.2% in 2027. The growth forecast for next year was also raised by 0.5 percentage points from 1.7% in May.
KDI's growth forecast for this year is 0.2 percentage points higher than the government's 3.0% target announced last month. It is also 0.6 percentage points above the Bank of Korea's forecast of 2.6% and aligns with the average forecast of 3.2% from eight major investment banks compiled by the International Financial Center at the end of last month.
Additionally, Moody's, an international credit rating agency, projected South Korea's economic growth at 3.5% for this year, suggesting that the semiconductor boom will continue at least until mid-next year.
KDI estimates that approximately 0.6 percentage points of the 0.7 percentage point increase in the growth forecast is due to the semiconductor and related industries. This figure reflects the increase in semiconductor exports, facility investments for production expansion, and consumption effects from rising incomes, indicating that semiconductors account for more than half of the overall growth.
In the second quarter of this year, GDP grew by 0.6% compared to the previous quarter and by 3.7% year-on-year, driven by increases in both exports and domestic demand. The surge in semiconductor export prices improved trade conditions, and the growth rate of gross domestic income (GDI) significantly outpaced that of GDP.
KDI's outlook assumes that the global memory semiconductor market will grow faster than initially expected. The World Semiconductor Trade Statistics (WSTS) forecasts that memory semiconductor sales will increase by 302.0% this year and by 36.0% next year.
This year, KDI has revised its export growth forecast to 8.7%, an increase of 4.1 percentage points from previous estimates. Exports of goods, particularly in information and communication technology (ICT) sectors like semiconductors, are expected to rise by 8.6%.
Facility investment growth has been raised from 3.3% to 7.9%, an increase of 4.6 percentage points. The forecast for facility investment in 2027 has also been adjusted upward from 2.4% to 7.0%.
Due to rising semiconductor prices and export volumes, this year's current account surplus is projected to reach $359.7 billion, an increase of $120.7 billion from previous estimates. The current account surplus for next year has also been raised from $213.7 billion to $356.2 billion, an increase of $142.5 billion.
However, the effects of the government's three mega-projects—semiconductors, AI data centers, and physical AI—are not included in this forecast.
Private consumption is expected to grow by 2.3% this year. Although real total income has increased significantly, the concentration of income growth in semiconductor-related companies and sectors, along with slow improvements in real wages and employment, has limited the upward revision to just 0.1 percentage points.
Construction investment is projected to increase by only 0.1% due to a downturn in the local housing market and rising construction costs. The increase in the number of employed persons has been revised down from 170,000 to 110,000, a reduction of 60,000. The forecast for consumer price inflation remains at 2.7%.
Kim Mi-ru, head of KDI's Macroeconomic and Financial Policy Research Division, stated, “While we are seeing high growth driven by the semiconductor boom, the benefits have not yet sufficiently spread to the incomes of many households, such as private consumption and employment.”
KDI has identified several downside risks, including a slowdown in global AI investment demand, intensified competition with other producing countries, U.S. tariff policies, and geopolitical conflicts in the Middle East. As reliance on semiconductors increases, any unexpected shifts in the market could lead to larger adjustments in growth forecasts than usual.
* This article has been translated by AI.
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