Korea GDP Seen Above 3% Next Year on AI Chip Demand

By Amara Osei

South Korea's real gross domestic product growth is projected to reach 3.8% this year and 3.1% next year, according to the Korea Institute of Finance, keeping expansion above 3% for a second straight year.

Kim Hyun-tae, head of the Korea Institute of Finance's macroeconomic research division, presented the forecast at the 2027 Economic and Financial Outlook Seminar, held at Bank Hall in Seoul on the 10th. The Bank of Korea's August economic outlook put next-year growth at 2.9%, leaving the institute's estimate 0.2 percentage points higher.

The institutional forecasts differ by 0.2 percentage points, while both place growth close to 3%.

What does the 3.1% forecast assume?

Kim said: “Export growth will slow next year because of a high base.” He expects domestic demand to keep recovering through three supports:

• Strong facility investment.
• A gradual pickup in private consumption.
• Expansionary fiscal management.

Together, those forces would deliver growth above 3% for a second consecutive year despite slower exports. The forecast depends on domestic spending and investment replacing part of the export contribution.

In short, the Korea Institute of Finance expects domestic demand to offset a tougher export comparison.

What do Bloomberg and JPMorgan expect?

Global investment banks including Bloomberg and JPMorgan gave higher forecasts and linked their outlooks to continued artificial-intelligence investment.

Bloomberg economist Kwon Hyo-sung expects next-year GDP growth in the mid-3% range, above both the Korea Institute of Finance's 3.1% and the Bank of Korea's 2.9%. He calls memory chips Korea's most important sector and expects demand to hold through next year.

Kwon named three forces shaping the global economy:

• The artificial-intelligence revolution.
• The war in Iran.
• Interest rates.

He also said the Democratic Party's victory in the recent U.S. midterm elections raised the possibility of regulation on data centers. Projects already under way would not be affected, he said.

“As long-term rates rose, pressure on AI investment increased, and a flight to safety brought buyers back into government bonds, pushing long-term rates down,” Kwon said. “If that eases pressure on AI investment and brings things into balance, it could be good for the Korean economy.”

In short, Bloomberg's higher path rests on sustained chip demand and less pressure on AI investment.

What could limit the upside?

JPMorgan economist Park Suk-gil sees upside risks to both growth and facility investment compared with the Korea Institute of Finance's next-year outlook. He expects real export growth to slow from this year's rate, but attributes that decline to a base effect after explosive growth.

Park also expects volatility in chip prices and doubts they will return to the levels recorded from 2020 to 2022, before AI. His forecast does not specify an exact growth rate.

Kim Young-joo, head of the macroeconomic forecasting department in the Bank of Korea's Research Department, agrees that solid growth driven by the chip boom can spread into domestic demand. He warns that this can prove a double-edged sword: as chip-led growth spreads, the overall economy becomes more sensitive to swings in the semiconductor cycle.

Lim Hong-ki, director of the economic analysis division at the Ministry of Finance and Economy's Economic Policy Bureau, said next year's policy direction is to let growth spread beyond semiconductors into other sectors.

In short, policy aims to broaden growth, while the chip cycle can amplify both upside and downside.

Next year's test is whether AI-linked chip demand can lift facility investment and private consumption before the export base effect and volatile chip prices weigh on the 3% path.