The South Korean economy is projected to grow by 3.1% next year, driven by strong semiconductor exports, increased facility investment, and a recovery in private consumption. However, experts caution that the concentration of growth in the semiconductor sector raises concerns about economic volatility due to changes in artificial intelligence (AI) investment conditions.
The Korea Financial Research Institute forecasted a 3.1% increase in real gross domestic product (GDP) for next year during the '2027 Economic and Financial Outlook Seminar' held on November 10 in Seoul. This figure is lower than this year's estimate of 3.8%, but the institute anticipates a continued recovery in domestic demand, primarily supported by facility investment and private consumption.
Private consumption is expected to rise from 2.0% this year to 2.3% next year. The strong performance of exports, particularly in semiconductors, is expected to boost wages and household income, while expanded disposable income due to fiscal policies will support the recovery in consumption. Facility investment is projected to increase by 5.4%, driven by the expansion of semiconductor production lines. Construction investment is also expected to improve from 0.1% this year to 1.6% next year.
In contrast, the total export growth rate is expected to slow from 9.9% this year to 5.2% next year. The consumer price inflation rate is projected to decrease to 2.4%, down from 2.7% this year, but demand-side price pressures may increase due to the recovery in domestic demand and expanded fiscal spending. The average yield on three-year government bonds is expected to rise from 3.7% this year to 4.1% next year, reflecting the possibility of interest rate hikes.
The concentration of growth in the semiconductor sector is also seen as a risk factor. Analysts warn that if expectations for AI profitability are adjusted or if investments in data centers are delayed, demand for semiconductors could decline, negatively impacting exports, investment, and consumption.
Kim Hyun-tae, head of the Macroeconomic Research Division at the Korea Financial Research Institute, stated, "If there is a sharp drop in semiconductor demand due to adjustments in AI profitability expectations or delays in data center investments, there is a risk that the shock will ripple through exports, investment, and consumption."
Across the financial sector, rising borrowing costs due to interest rate hikes and concerns over asset quality are expected to persist. Banks are anticipated to see an increase in loans primarily to large corporations due to ongoing household loan regulations, but rising borrowing costs and a concentration of lending to high-quality firms may pose challenges. The credit card sector is expected to continue growing in payment services, but profitability improvements may be limited due to interest and bad debt costs. Mutual finance and savings banks must also prepare for potential declines in asset quality due to rising interest rates.
* This article has been translated by AI.
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