High First-Half Peak Driven by US Investments and Overseas Stock Outflows
Gradual Second-Half Decline on WGBI Inclusion and Current Account Surplus
The outlook for next year suggests that the won-dollar exchange rate will remain at a high level in the first half of the year, before gradually declining in the second half, resulting in an annual average of 1,400 won.
According to the "2026 Domestic and Global Economic Outlook" released by the LG Business Research Institute on December 21, the won-dollar exchange rate in the first half of next year is likely to fluctuate at elevated levels due to demand for foreign currency funding arising from direct investment in the United States and continued capital outflows from overseas stock market investments. The ongoing trend of capital flowing into the US stock market, combined with uncertainties surrounding the timing and scale of direct investments by Korean companies in the US, is also expected to exert upward pressure on the exchange rate.
However, in the second half of the year, foreign exchange supply and demand conditions are expected to gradually improve. With the inclusion of Korean government bonds in the World Government Bond Index, foreign bond capital is anticipated to flow in sequentially. Additionally, a robust current account surplus is likely to be maintained due to strong exports of information technology products such as semiconductors and the stabilization of raw material prices, which is expected to ease the pressure for a weaker won. As a result, the won-dollar exchange rate is projected to show a gradual downward trend in the second half of the year after peaking in the first half, displaying a pattern of higher rates in the first half and lower rates in the second half throughout the year.
Despite the spread of protectionist policies and ongoing policy uncertainties, the global economy is projected to achieve a growth rate of around 3%, supported by the artificial intelligence industry and infrastructure investment, which will help cushion downside risks. The globally optimized production structure for free trade is losing efficiency due to rising tariffs and increased security costs, and countries are expected to expand technology investment and fiscal spending to enhance productivity.
The report forecasts that major governments will pursue both fiscal expansion and monetary easing to stimulate domestic demand in response to deteriorating export conditions. In this process, differences in fiscal capacity are expected to lead to diverging growth trajectories across countries.
The Korean economy is expected to improve from 1.1% growth this year to 2% growth in 2026, driven by expansionary fiscal policy and the strong performance of industries related to artificial intelligence. The government plans to establish a National Growth Fund worth 150 trillion won to expand investments in strategic industries such as artificial intelligence, semiconductors, mobility, and biotechnology, and to increase the budget for social infrastructure. As a result, facility investment is expected to continue its recovery, and construction investment, which had declined for five consecutive years, is projected to turn positive.
Exports are expected to see a slowdown in growth. While items related to artificial intelligence, such as high-bandwidth memory semiconductors, are likely to maintain solid momentum thanks to increased global facility investment, traditional key industries such as petrochemicals, steel, and home appliances are expected to recover more slowly due to weakening global demand and intensified competition with China.
In the financial markets, the monetary easing stance of major central banks is expected to continue into 2026. In the United States, three or so benchmark interest rate cuts are anticipated ahead of the midterm elections, and the Bank of Korea is also expected to consider an additional 0.25 percentage point rate cut. However, with ongoing disparities in industry performance and persistent risk aversion, it is expected to remain difficult for industries with sluggish business conditions and low-credit companies to see significant improvements in funding conditions.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
