South Korea To Drive 2026 Growth With AI, Chips Amid Trade Uncertainty

SEOUL, Dec 26 (Bernama-Yonhap) -- With global economic uncertainties widely expected to continue weighing on Asia's fourth-largest economy in 2026, South Korea will seek to weather the challenges by leveraging its semiconductor industry amid the global artificial intelligence (AI) boom, experts said Friday.

According to Yonhap News Agency, the South Korean economy faced significant jitters earlier this year after US President Donald Trump announced a series of protectionist measures, including tariffs targeting long-standing economic allies.

After a series of negotiations, Seoul and Washington in November released a fact sheet that codified the US agreement to lower its reciprocal tariffs on South Korean products to 15 per cent from 25 per cent, in return for Seoul's commitment to invest US$350 billion in the United States and other pledges.

Taking such progress into account, the Bank of Korea revised up its 2026 growth outlook to 1.8 per cent from the earlier projection of 1.6 per cent, also citing a strong upturn in the global semiconductor industry.

The ASEAN+3 Macroeconomic Research Office (AMRO) projected South Korea's economy to expand by 1.9 per cent next year on the back of solid exports.

South Korea's exports increased 8.4 per cent from a year earlier in November to more than US$61 billion, marking the sixth consecutive month of growth.

Accumulated exports in the January–November period reached US$640.2 billion, a record high for the first 11 months of a year, raising expectations that the country's annual exports will surpass the US$700 billion mark for the first time in its history this year.

Despite the upbeat outlook and data, experts said South Korea faces broad challenges, including foreign exchange volatility, intensifying competition in major industries — particularly from Chinese rivals — and slowing growth in domestic sectors.

“It is likely South Korea will achieve economic growth of 1.8 per cent, not because the situation will improve next year, but because conditions were extremely challenging this year,” Joo Won, an economist at the Hyundai Research Institute, told Yonhap News Agency.

The economist noted South Korea's construction industry, which accounts for more than 10 per cent of its gross domestic product (GDP), is expected to continue weighing on the overall economy.

Touching on the weak Korean won, Joo said the situation is expected to gradually improve down the road, although the US dollar will remain strong in the first quarter of 2026.

The won was quoted at 1,483.6 won per dollar on Tuesday, nearing its weakest level since April 9, when it closed at 1,484.1 won. The April figure marked the lowest level since March 12, 2009.

“In the first quarter, the foreign exchange market will remain unstable,” Joo said, noting many foreign companies based in South Korea send money back to their home countries in March or April following the end of the fiscal year. “But it will stabilise starting in the second quarter.”

Choe Byung-ho, an economics professor at Pusan National University, noted export-oriented economies like South Korea will face greater challenges in 2026 as a global economic slowdown leads to sluggish outbound shipments.

“Domestic demand remains weak, and inflation is unstable,” Choe told Yonhap News Agency. “This cannot be addressed with short-term measures, and the government needs to make efforts to improve overall productivity under a longer-term vision.”

Choe said South Korea can nevertheless leverage the global AI boom and expand investment in the sector.

Park Jea-gun, a distinguished professor of electronic engineering at Hanyang University, said South Korea's semiconductor industry is set to remain strong throughout 2026 on the back of solid demand for premium chips, including high bandwidth memory (HBM), from the AI sector.

“In early 2024, some anticipated a downcycle in the memory sector, but there has been an abrupt surge in demand from the AI segment,” Park told Yonhap News Agency.

“Even considering upcoming new production lines by Samsung Electronics and SK hynix, supply will not catch up with demand,” Park said. “A tight supply will lead to higher prices. As a result, the HBM sector will enjoy a supercycle. Most of the future production has already been sold.”

Park noted the semiconductor sector will remain a key engine for South Korea for the time being, ruling out the possibility of a so-called AI bubble.

“AI is a trend bringing major social change, and different countries are pushing to adopt sovereign AI models. This trend will continue to grow,” Park said. “Supply shortages may ease in 2028.”

To build on the boom, Park said the government needs to make proactive efforts to ensure the construction of new Samsung Electronics and SK hynix production lines is completed on schedule.

“The electricity and water supply cannot be handled solely by businesses. Amid concerns over energy shortages, the government needs to help companies build new factories as planned,” Park said.

-- BERNAMA-YONHAP