S. Korea's Q1 growth rate jumps to 2nd among OECD members; 3% annual forecast in sight

South Korea ranked second among OECD member states in first-quarter economic growth this year, a sharp turnaround from 34th place in the fourth quarter of last year.

As South Korea draws attention as a major beneficiary of the semiconductor supercycle, international organizations and economic institutions are steadily revising their growth forecasts upward, while the government is preparing a second-half economic strategy that could put annual growth at nearly 3 percent or higher.

According to OECD data released Sunday, South Korea's real GDP growth rate of 1.7 percent in the first quarter ranked second among the 35 member countries for which the organization had published figures. Denmark led with 1.9 percent growth, followed by Estonia at 1.1 percent and Finland at 0.9 percent.

Among major economies, the United States posted 0.4 percent growth, Japan 0.5 percent, Australia 0.3 percent, Canada 0.0 percent, France -0.1 percent, Germany 0.3 percent, Italy 0.3 percent and the United Kingdom 0.6 percent. The OECD average stood at 0.4 percent.

Of the OECD's 38 member countries, Greece, Iceland and New Zealand had not yet reported figures to the organization.

South Korea's GDP contracted 0.2 percent in the fourth quarter of last year, placing it 34th among OECD members. A surge in exports driven by the semiconductor industry, combined with a favorable base effect, fueled a surprise rebound in the first quarter that vaulted the country up the rankings.

The government is preparing to revise its growth forecast upward. Its "2026 Economic Growth Strategy," announced Jan. 9, projected real GDP growth of 2.0 percent for this year, but officials plan to include a higher figure in a second-half economic growth strategy to be released as early as the end of this month, reflecting a semiconductor boom that has exceeded expectations.

There is growing speculation that the government could raise its forecast to the high 2 percent range or even above 3 percent, given stronger-than-expected conditions in the chip sector — a factor that other institutions have already taken into account in their own projections.

Last month, the Bank of Korea raised its growth forecast for this year from 2.0 percent to 2.6 percent, a 0.6 percentage point increase. The central bank also said that under an optimistic scenario in which semiconductor export volumes grow by the mid-20 percent range this year, annual growth could reach 3.1 percent.

The OECD recently raised its own forecast for South Korea from 1.7 percent to 2.6 percent as well, noting that "growth could be higher than projected if demand for advanced semiconductors strengthens" — underscoring the sector's central role in the outlook.

Analysts in the securities industry project that the combined operating profit of Samsung Electronics and SK Hynix — on a consolidated basis — could expand from roughly 91 trillion won (about $59.5 billion) last year to around 630 trillion won this year. That increase alone would be equivalent to roughly one-fifth of South Korea's gross domestic product last year, which stood at approximately 2,663 trillion won.

Bank of America has raised its growth forecast for South Korea from 1.9 percent to 3.1 percent, a 1.2 percentage point increase, while Citibank and JPMorgan each project 3.0 percent growth — part of a growing list of investment banks forecasting growth above 3 percent.

A government official familiar with the forecast said it would likely be revised higher than the current figure, but added it was too early to specify a number, saying officials needed to review additional economic data before making a final determination.

A separate official said the data available at the time of publication would influence the final figure, and that the government's forecast could end up higher or lower than those of other institutions depending on how economic conditions develop.

South Korea's exports surged 53.2 percent year-on-year to $87.75 billion last month, setting a monthly record, while the current account surplus also hit an all-time high. According to the Bank of Korea and other sources, the cumulative current account surplus from January through April reached approximately $102.67 billion — the largest on record for that period and roughly 4.3 times the $24 billion posted in the same period last year.

The OECD also highlighted the shift in South Korea's external indicators. In its latest Economic Outlook, the organization projected that continued strength in IT-related exports would push South Korea's current account surplus to around 10 percent of GDP by 2027, up from 6.6 percent in 2025 — a rise of roughly 3.4 percentage points in two years. If the OECD's projection holds, the surplus ratio would reach double digits for the first time since 1998, when it stood at 10.2 percent.

While the OECD projected rising current account surpluses across major Asian economies, it forecast a particularly sharp increase for South Korea. China and Japan posted surpluses equivalent to 3.8 percent and 4.8 percent of GDP last year, respectively, and are expected to reach 4.0 percent and 5.4 percent by 2027.

Over the same period, the OECD projected the United States' current account deficit would narrow from 3.6 percent to 3.1 percent of GDP, while the euro area's surplus would ease from 2.6 percent to 2.2 percent.

Despite the record current account surplus, South Korea faces a seemingly contradictory situation: the won-dollar exchange rate has been climbing sharply.

During overnight trading Saturday in the Seoul foreign exchange market, the won weakened as far as 1,561.50 per dollar — the highest level in 17 years and three months, since an intraday high of 1,597.0 won on March 6, 2009, during the global financial crisis.

The won-dollar rate held below 1,500 for some time through May 14 on a closing basis, but has since remained above that level in a sustained run higher.

Foreign exchange authorities intervened in the market on two consecutive days, Thursday and Friday, but their efforts were hampered by heavy foreign selling — overseas investors offloaded nearly 18 trillion won worth of domestic equities over four trading sessions this month.

Authorities attributed the selling to profit-taking and portfolio rebalancing as share prices rose, and said the situation did not reflect a shortage of foreign currency.

"If this were a crisis driven by concerns about South Korea's economic stability, urgent measures would be needed," a foreign exchange authority official said. "But the current account is running a large surplus and the Korean economy is fundamentally sound."

Even if a full-blown currency crisis appears unlikely, the weaker won is squeezing household budgets — particularly for lower-income and vulnerable groups — and tightening conditions for small and medium-sized enterprises and domestically oriented businesses.

South Korea's import price index in won terms rose 20.2 percent year-on-year in April, marking a second consecutive month of year-on-year gains above 20 percent. The won-denominated increase has outpaced the dollar-denominated figure by a widening margin — a gap of just 0.1 percentage point in January that had widened to 3.4 percentage points by April.

Import prices typically feed through to consumer prices with a lag. Last month's consumer price index rose 3.1 percent year-on-year — the first time inflation has exceeded 3 percent since March 2024, a gap of 26 months — as the shadow of Middle East conflict continued to weigh on the global economy.