Key facts
- South Korea's economy is projected to have grown by 0.4% in the second quarter, a significant slowdown from 1.8% in the first quarter.
- Robust export growth, particularly in semiconductors driven by AI demand, was offset by weakening domestic consumption and job cuts in non-chip sectors.
- The economy recorded a trade surplus of $138.3 billion in the first half of the year.
- The Bank of Korea raised its benchmark interest rate for the first time in 3-1/2 years on July 16, with further hikes expected.
South Korea's economy is expected to show significantly slower growth in the second quarter of 2026 compared to the first, according to a Reuters poll of economists. The median forecast suggests a 0.4% expansion, a sharp deceleration from the 1.8% growth recorded in the first quarter, which was the highest in nearly six years.
This slowdown is attributed to weakening domestic demand and consumption, despite a robust performance in exports. Semiconductor exports, boosted by AI-related demand, surged by nearly 200% in June, contributing to a 71% overall export increase and a first-half trade surplus of $138.3 billion. However, economists noted that job cuts in sectors outside of chips have made consumers conservative about spending, leading to a "K-shaped growth pattern."
On a year-on-year basis, GDP is forecast to grow 3.5% in the second quarter, down from 3.8% in the first quarter. Despite the quarterly slowdown, the finance ministry projects full-year economic growth at 3.0%, the highest in five years, with economists anticipating an average of 2.8% for the year, supported by AI tailwinds and emerging spillovers into the broader economy.
In response to economic conditions, the Bank of Korea raised its benchmark interest rate for the first time in 3-1/2 years on July 16. Governor Shin Hyun Song cited growth, inflation, and financial stability as factors supporting the hike. The central bank is anticipated to implement at least one more rate increase this year.