OECD raises South Korea's 2026 growth forecast to 2.6% from 1.7%

The OECD has raised its growth forecast for South Korea this year to 2.6% from 1.7%, an upward revision of 0.9 percentage points.

Applying a GDP deflator of 7.6%, the Ministry of Finance and Economy estimated South Korea's nominal growth rate for this year at around 10.4%. The outlook for the general government debt-to-GDP ratio also improved from earlier projections.

In its Economic Outlook report released Wednesday (local time), the OECD said semiconductor exports would continue to drive growth and private investment, while consumption would stage a gradual recovery supported by fiscal policy.

The OECD had cut its South Korea growth forecast in March by 0.4 percentage points to 1.7%, citing the impact of Middle East conflicts, but sharply revised it upward in the latest report to reflect more recent economic trends.

The revision reflects the OECD's assessment that the recovery is stronger than expected, particularly after South Korea's real GDP grew 1.7% quarter-on-quarter in the first quarter of this year.

The new OECD forecast matches the Bank of Korea's most recent projection. It is 0.1 percentage point above the Korea Development Institute's forecast of 2.5% and 0.2 percentage point below the Korea Institute of Finance's estimate of 2.8%.

According to the Ministry of Finance and Economy, South Korea recorded the largest upward revision in its growth forecast among all G20 nations. The OECD trimmed its global growth outlook by 0.1 percentage point to 2.8%, while holding its G20-wide forecast steady at 3.0%. The United States was left unchanged at 2.0%, while Japan was revised down to 0.6% from 0.9%.

The OECD said stronger demand for advanced semiconductors could push South Korea's growth rate above its current projection, flagging the semiconductor industry as a potential additional upside driver for the economy.

On the downside, the OECD identified supply chain disruptions from Middle East conflicts, industrial action at manufacturing sites, and export restrictions as risks to growth.

South Korea's growth rate next year is forecast at 1.9%, which is 0.2 percentage point below the March projection.

Consumer price inflation is expected to come in at 2.6% this year, 0.1 percentage point below the previous forecast of 2.7%. For next year, the OECD revised its inflation forecast up by 0.2 percentage point from the March projection to 2.2%.

The OECD put South Korea's GDP deflator at 7.6% for this year. The Ministry of Finance and Economy estimated that, combined with the 2.6% real growth forecast, the nominal economic growth rate would reach 10.4% this year.

If the projections materialize, fiscal health indicators are also expected to improve. The OECD forecast South Korea's general government debt as a share of GDP at 48.2% this year and 50.2% next year — down 3.8 percentage points and 4.8 percentage points, respectively, from its December projections.

Assessing the South Korean economy in the first quarter of this year, the OECD noted that industrial output had returned to growth, but said business confidence in the manufacturing sector — outside semiconductors and shipbuilding — remained weak.

Private investment is expanding, led by the semiconductor industry, and the OECD expects the momentum to broaden to other sectors as the year progresses.

The OECD also said fuel price controls and fuel tax cuts introduced in response to the Middle East war had helped ease inflationary pressure, but warned that such measures could also prolong inflation.

The OECD recommended that South Korea prioritize targeted support for vulnerable households and businesses when responding to energy price shocks, and said energy price controls, fuel tax cuts, and export restrictions should be phased out gradually.