South Korean Economy Likely Slowed in Q2 Amid Weak Domestic Demand

South Korea's economy is expected to have grown at a significantly slower pace in the second quarter of 2026 compared to the robust performance in the first three months, according to a Reuters poll of economists. While strong export growth provided a boost, it was counteracted by a noticeable weakening in domestic demand.

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Exports and investment are two key drivers for Q2 GDP, but domestic demand and consumption growth likely remain weak.

The median forecast among 24 economists surveyed suggests a 0.4% expansion for the second quarter. This marks a considerable slowdown from the 1.8% growth recorded in the January-March period, which was the highest in nearly six years. Forecasts for the quarter ranged from 0.1% to 1.0%.

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Consumers "looked very conservative about spending because outside chip sectors, other service sectors, manufacturing sectors, they continued to cut jobs."

Jeong Woo Park, Asia economist at Nomura, noted that while exports and investment were key drivers, domestic demand and consumption remained weak. He pointed to job cuts in sectors outside of chips and other manufacturing and service industries, describing the economic pattern as "K-shaped growth." This limited the positive impact from strong chip cycles.

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So because of that, this is very much like a K-shaped growth pattern. I think that limited some possible impacts from strong chip cycles.

Exports surged approximately 71% in June, reaching their strongest pace in almost half a century, largely due to an AI-driven spending boom that propelled semiconductor exports up by nearly 200% to $44.8 billion. The country recorded a trade surplus of $138.3 billion in the first half of the year. Despite the Q2 slowdown, economists anticipate South Korea's economy will achieve full-year growth exceeding 3%, supported by AI-related tailwinds and signs of these benefits spreading to the broader economy.

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The big picture though is that South Korea’s economy looks on track to achieve full-year growth in excess of 3 per cent, led by AI-related tailwinds and supported by signs that spillovers into the wider economy are beginning to materialize.