ING economist Min Joo Kang reports that South Korea's GDP is expected to rebound in the first quarter of 2026, driven by robust chip-led exports and recovering investment, but the overall 2026 GDP forecast has been reduced to 2.0% from 2.2% due to rising downside risks such as supply disruptions and higher energy prices [1]. The supplementary budget will increase government spending in 2026 to 752.1 trillion won, marking an 11.8% year-on-year rise, and is projected to boost GDP by 0.2 percentage points. Both political parties have agreed to approve the budget bill by 10 April [1].
Despite the fiscal boost, ING expects growth to decelerate to 0.2% quarter-on-quarter in 2Q26, but South Korea is anticipated to avoid a contraction. The 2Q26 and 3Q26 GDP forecasts have also been trimmed, reflecting concerns about persistent supply disruptions and elevated energy prices [1]. Min Joo Kang warns that if supply disruptions persist, negative impacts could intensify in the second half of 2026, given Korea's high dependence on chips for economic growth [1].
The supplementary budget and sustained higher energy prices are likely to increase upward inflation risks in the coming months. If the economy remains resilient and inflation stays elevated, the Bank of Korea's policy focus will shift toward inflation stabilization and financial stability [1]. Strong global demand for AI and memory chips is expected to continue, with no significant signs of a slowdown in AI investment. However, this trend may contribute to inflationary pressures on IT goods globally, potentially increasing burdens for consumers [1].
CONCLUSION
South Korea's 2026 GDP outlook has been revised downward to 2.0% amid supply chain and energy price concerns, but chip exports and fiscal stimulus are expected to support growth. Inflation risks are rising, prompting a likely shift in central bank policy focus. The market takeaway is cautious optimism, with resilience in key sectors offset by macroeconomic headwinds.