GDP growth is projected to strengthen to 2.6% in 2026 before moderating to 1.9% in 2027. Semiconductor exports continue to drive growth and private investment. Consumption will continue a gradual recovery, supported by fiscal policy. Headline inflation is set to reach 2.6% in 2026 before falling back to the target in 2027. Potential shortages related to the evolving conflict in the Middle East are a key downside risk, while strong demand for advanced semiconductors could raise growth more than projected.

Monetary policy should remain focused on anchoring inflation expectations while looking through the temporary supply shock and tax changes. Targeted support to vulnerable households and businesses should be prioritised, while phasing out energy price support, export controls and price regulations. Creating a broad political consensus for a long-term fiscal sustainability framework would help meet fiscal pressures from rapid ageing.

Korea’s GDP per capita has converged toward the OECD average over the past decades, and the gap with the most advanced OECD economies has continued to narrow until recently. Growth has mainly been driven by capital accumulation, heavy investments in education and increasing labour supply. However, due to low birth rates and population ageing, the labour force is shrinking. The low participation rate, compared to the top performing OECD economies, also points to untapped potential.

To enhance Korea’s growth potential, it is essential to promote competition and technological innovation while at the same time reducing carbon emissions. Continued efforts to reduce barriers to foreign direct investment can increase the inflow of know-how, capital and technology. Improving the education system would more efficiently provide skilled workers that meet businesses’ needs.

GDP growth in Korea has recovered, supported by strong exports. Employment remains stable at a high level, while unemployment is low. Interest rates have likely peaked and housing prices have stabilised, all of which should support consumption going forward. Household debt remains high, and housebuilding-related project finance has become a financial stability concern. Reforms to ensure fair competition in the domestic market would increase productivity in the SME sector. Reducing greenhouse gas emissions in line with the 2030 target requires tightening the emissions trading scheme and reforming energy markets to incentivise clean electricity supply and energy savings. The Korean fertility rate has fallen to the lowest in the world, which will put labour supply and public finances under pressure. A large career cost for women who become mothers holds back female employment and fertility, and underpins the widest gender pay gap in the OECD. Improving the work-life balance for both genders, closing remaining gaps in family policies, addressing high housing and education costs, and tackling labour market dualism are key to reverse the trend.

Further reading

• Upgrading Korea’s growth model, Blog post
• Press release 
• Read the survey and access previous releases