Korean Economic Outlook for 2026

Sora Lee
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Sora Lee: Korea Institute for Industrial Economics and Trade

Industrial Economic Review from Korea Institute for Industrial Economics and Trade

Abstract: Korea's economy is projected to grow by 1.9 percent in 2026, with domestic demand serving as the primary engine of expansion. Private consumption is expected to rise by 1.7 percent, as inflation stabilizes, interest rates fall, real incomes grow, and the government pursues expansionary fiscal policy. Facility investment is forecast to continue its upward trend, driven by improved financing conditions and strong investment demand in high-tech industries related to artificial intelligence (AI). Construction investment is expected to finally rebound; we anticipate an uptick of 2.7 percent, marking the first positive growth in this metric since 2020, largely due to higher government spending on social overhead capital (SOC). Exports are projected to decline by 0.5 percent amid weak global growth, subdued trade activity, and a high base effect, while US tariff risks and ongoing US-China tensions will remain key external headwinds. Imports are expected to fall by 0.3 percent, reflecting weaker intermediate goods demand and lower import prices. We forecast the trade surplus to be USD 67.5 billion, representing a slight decline from 2025. International oil prices are expected to fall due to persistent oversupply and weak demand growth. The KRW-USD exchange rate is projected to average around 1,391 won to the dollar, with appreciation of the won constrained by uncertainties surrounding further US rate cuts.

Keywords: economic outlook; economic forecasting; economic growth; consumption; investment; exports; imports; South Korea (search for similar items in EconPapers)
JEL-codes: E66 F01 (search for similar items in EconPapers)
Pages: 14
Date: 2025
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Published in KIET Industrial Economic Review Vol. 30, No. 6

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