KDI Raises South Korea's Growth Forecast to 3.2% Amid Semiconductor Boom, but Employment Outlook Dims

The Korea Development Institute (KDI) has revised its economic growth forecast for South Korea upward to 3.2% for the current year, a significant increase from its previous projection of 2.5%. This optimistic outlook is largely driven by the booming global semiconductor industry, which is expected to continue its positive impact into next year, with the 2025 forecast also raised to 2.2% from 1.7%.

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Our economy is expected to maintain a favorable trend, recording high growth of 3.2% in 2026 mainly due to the global semiconductor boom, and growing by 2.2% in 2027.

KDI researchers anticipate that the semiconductor sector's strength will primarily boost exports and facility investment this year, with a potential spillover effect into private consumption next year. Kim Mi-ru, head of KDI's Macro and Financial Policy Research Department, noted that over half of the projected growth is directly linked to the semiconductor industry. This surge is also expected to result in a record current account surplus of $360 billion, a substantial increase from the typical $100 billion surplus.

However, the KDI's revised forecast presents a stark contrast regarding employment. The number of new jobs expected this year is projected to fall by 42% to 110,000, down from 190,000 last year. This slowdown in job creation is attributed to the low employment-inducing effect of the semiconductor industry, which is the main driver of economic growth. Furthermore, other sectors like construction and services are facing unfavorable conditions, failing to offset the limited job growth from the tech sector.

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It's difficult to give an exact figure, but you can consider more than half of it to be related to semiconductors and the semiconductor industry.

Kim Ji-yeon, head of KDI's Economic Outlook Division, explained that the concentration of growth in the semiconductor sector, which employs a small portion of the overall workforce, limits its positive impact on total employment. She added that while high growth is important, the distribution and spread of that growth are crucial for it to translate into tangible improvements in people's economic well-being, a factor that appears to be lagging.

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The current growth is concentrated in the semiconductor sector, and the number of employees in the semiconductor sector is a small proportion of the total employment, so the positive impact on overall employment is not significant. There are not many positive factors for the semiconductor-related sectors.

KDI's updated economic outlook also forecasts consumer prices to rise by 2.7% year-on-year, influenced by currency depreciation and increased demand stemming from economic recovery. Despite the robust growth figures, the disconnect between macro-economic performance and the lived experiences of the general population remains a key concern.

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High growth itself is certainly important, but if the composition and spread of that growth are well-transmitted, it can also spread to the perceived economy, but these aspects are still somewhat lacking.