Seoul: South Korea's economy is projected to grow by 1.9 percent next year, primarily driven by a recovery in domestic consumption, while exports are expected to decline by 0.5 percent following a peak in 2025, a state-run think tank reported.
According to Yonhap News Agency, the Korea Institute for Industrial Economics and Trade (KIET) released its projections, indicating that exports will slightly decrease in 2026 due to lingering global trade uncertainties and a base effect. However, domestic consumption is anticipated to continue its upward trajectory.
In 2025, Korea's annual exports are anticipated to exceed the US$700 billion threshold for the first time, marking a 2.5 percent increase from the previous year. This growth is mainly attributed to strong demand for semiconductors fueled by an artificial intelligence (AI) boom, as stated in KIET's annual report.
During the first ten months of this year, exports increased by 2.3 percent from the previous year to $579.2 billion, the highest ever for the period. This growth was led by outbound shipments of semiconductors, automobiles, ships, and biohealth products.
Next year, exports are projected to reach $697.1 billion, according to the report. This projection considers a global economic and trade slowdown, as well as a base effect from the expected record-high figure this year.
Historically, the country's exports surpassed the $100 billion mark in 1995, the $200 billion mark in 2004, and the $300 billion mark in 2006. They continued to climb over $400 billion in 2008 before breaching the $500 billion and $600 billion marks in 2011 and 2021, respectively.
In detail, chip exports are expected to grow by 4.7 percent on-year in 2026, driven by continued demand for high-value products like high-bandwidth memory and DDR5. Similarly, biohealth exports are projected to increase by 7.8 percent. However, exports of automobiles, ships, and machinery are expected to decrease by 0.6 percent, 4 percent, and 3.7 percent, respectively, due to the impact of U.S. tariff policies. Petroleum and steel exports are expected to sharply decline by 16.3 percent and 5 percent, respectively.
KIET also projected private consumption to rise by 1.7 percent from the previous year in 2026, supported by government policy measures and the stabilization of interest rates and prices. Facility investment is expected to grow by 1.9 percent, driven by improved company liquidity and substantial investment in advanced industries related to AI, while construction investment is projected to increase by 2.7 percent.
The think tank's growth forecast aligns with separate projections made earlier by eight major global investment banks, including Barclays, Bank of America, and Citi Group. Earlier this month, the Korea Development Institute forecasted the Korean economy to expand by 1.8 percent in 2026.