ING economist Min Joo Kang highlights that South Korea’s 1Q26 GDP is set to rebound on strong chip-led exports and recovering investment, but trims the 2026 GDP forecast to 2.0% from 2.2%. She notes rising downside risks from supply disruptions and higher energy prices, partly offset by a sizeable supplementary budget and resilient external demand.
Chip strength offsets rising headwinds
“If supply disruptions persist, adverse effects could become evident in the second half of 2026. Given Korea’s high dependence on chips for growth, negative impacts could intensify later this year.”
“The extra budget will lift government spending in 2026 to 752.1 trillion won, an 11.8% year-on-year increase, projected to raise GDP by 0.2 percentage points. Both parties agreed to approve the bill by 10 April.”
“Thus, we expect growth to decelerate to 0.2% QoQ but to avoid a contraction in 2Q26. Along with trimming down the 2Q26 and 3Q26 GDP, we have lowered our 2026 GDP outlook from 2.2% YoY to 2.0%.”
“Higher energy prices for longer and supplementary budget measures could increase upward inflation risks in coming months. If we are right about the resilience of the economy and a higher-inflation path, then the Bank of Korea’s policy focus will be on inflation stabilisation and financial stability.”
“We expect strong demand for AI and memory chips to continue, with no significant signs of a slowdown in AI investment globally. But clearly, this is likely to add to inflationary pressures on IT goods globally – and, eventually, more burdens for consumers.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/south-korea-growth-outlook-supported-by-chips-and-fiscal-boost-ing-202604012311
