South Korea Balancing Act Between AI Boom and Energy Driven Challenges

ING upgraded South Korea's 2026 GDP growth to 3.0% as a massive AI semiconductor boom offsets energy shocks from Middle East conflicts. However, rising inflation and sectoral imbalances will likely force the Bank of Korea to continue rate hikes into 2027.

Key Takeaways

• 1.ING has upgraded South Korea's 2026 annual GDP growth forecast from 2.8% to 3.0% due to robust exports and firm demand.
• 2.The semiconductor sector is becoming increasingly dominant, expected to account for 40% of total exports in 2026.
• 3.The Bank of Korea is expected to maintain a hawkish stance with rate hikes continuing through the first half of 2027.

Table of Contents

• Exports should serve as a primary growth engine in 2026 and beyond
• Exports should remain a main growth driver
• Korean exporters able to increase prices, improving terms of trade
• Terms of trade should improve, eventually supporting domestic economy
• Pipeline prices are on the rise, likely to push up consumer prices
• CPI inflation is expected to hit 3% as early as May
• Housing prices have been on the rise, adding inflationary pressures
• Consumer sentiment improved despite ongoing war
• The war hit domestic-oriented businesses harder
• Mid-year growth set to moderate, but annual GDP to reach 3.0% in 2026
• We maintain a constructive view on Korean growth in year ahead
• Bank of Korea's rate hikes will continue throughout 2027
• Government fiscal policy will remain expansionary

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