Bank of Korea affirms 2026 growth and inflation outlooks amid semiconductor strength

The Bank of Korea announced that Korea's economic growth and CPI inflation for 2026 are projected to remain in line with its previous outlook. The central bank cited a robust semiconductor cycle and consumption recovery for growth, while stable inflation is supported by offsetting factors like weak oil prices.

Korea's economy on track with semiconductor-led growth

The Bank of Korea projects Korea's economic growth for 2026 to remain broadly in line with its November 2025 outlook of 1.8 percent.

This stability is underpinned by a robust semiconductor cycle and a continued recovery in consumption.

Non-IT exports and investment, however, are expected to remain subdued due to factors such as U.S. tariffs.

The central bank noted that while the third-quarter 2025 growth rate was revised up to 1.3 percent, the fourth-quarter rate is expected to fall below previous projections, leading to an annual growth of 1.0 percent.

For 2026, growth is anticipated to strengthen, primarily led by domestic demand, supported by continued consumption recovery and easing weakness in construction investment.

Semiconductor exports are expected to sustain their robust trend, contrasting with projected weakness in non-IT items.

Inflation trajectory and global headwinds

CPI inflation for 2026 is projected to remain stable at 2.1 percent for headline and 2.0 percent for core inflation, consistent with the previous outlook.

This stability is due to upside factors like an elevated exchange rate being offset by weak global oil prices and government price stabilization measures.

In December 2025, CPI inflation slowed to 2.3 percent.

The Bank of Korea expects CPI inflation to gradually decline towards 2 percent and then hover around that target level.

Globally, the economy is anticipated to grow at around 3 percent, with key risks stemming from major economies' trade policies and the AI cycle's trajectory.

The U.S. economy is projected for low-2% growth, while the euro area expects moderate growth.

Steady path, underlying risks

While the outlook remains stable, the reliance on the semiconductor cycle introduces a degree of vulnerability.

Global trade uncertainties and U.S. tariffs present ongoing headwinds for non-IT sectors.

The central bank's consistent projections suggest a cautious optimism, yet external factors could still disrupt this trajectory.