[2026 Growth Strategy] Ambition for a '2% Rebound,' but Sluggish Outlook Without Semiconductors

Lee Administration Announces 2026 Economic Outlook

The Lee Jaemyung administration has raised its economic growth target for the second year in office from 1.8%-set five months ago-to 2.0%. This aims to double last year's projected growth rate of 1.0%. The revision reflects expectations of a recovery in construction investment and strong export growth led by semiconductors. The government plans to support the rise of the semiconductor industry to the world's second-largest and foster new growth sectors such as defense and K-culture, aiming for economic performance that surpasses the potential growth rate estimated by the OECD at 1.8%. However, some point out that the rebound to 2% growth is largely an optical illusion created by the global semiconductor boom, and that the key challenge is to strengthen the overall industrial fundamentals of traditional export sectors, which continue to experience negative growth.

Koo Yoon-chul, Deputy Prime Minister for Economy and Minister of Economy and Finance, is delivering opening remarks at the 2026 Economic Growth Strategy Party-Government Consultation held at the National Assembly on the 7th. January 7, 2026 Photo by Kim Hyunmin

On January 9, Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul announced the "2026 Economic Growth Strategy," which included these details. The government's 2.0% growth forecast is more optimistic than projections by major domestic institutions such as the Bank of Korea and the Korea Development Institute (KDI), which estimate growth at 1.8%. Government growth forecasts are typically seen as targets that reflect policy commitment, so they often present more hopeful figures than other institutions.

Deputy Prime Minister Koo stated, "We face formidable challenges, including global protectionism, supply chain crises, the reorganization of the international economic order, weakening competitiveness in traditional industries, and widening polarization across sectors. Our goal is to overcome these challenges and achieve growth above the potential rate this year, making it the starting point for a major economic leap forward."

Construction Investment Turns Positive After Three Years, But...

This year, a clear boom is expected in the semiconductor sector, Korea's main export item. Exports, which grew by 3.8% last year, are projected to increase by 4.2% this year, driving economic growth. Although exports declined in the first quarter of last year due to the lingering effects of martial law, they rebounded for three consecutive quarters from the second quarter onward, despite adverse conditions such as U.S. tariffs, thanks to strong semiconductor performance.

Imports are also expected to increase by 2% overall, despite continued sluggishness in energy imports such as crude oil and gas, due to improved consumption and expanded semiconductor investment. However, the growth rate of facility investment is forecast to remain at 2.1%, the same as last year, as the petrochemical and steel sectors continue to struggle.

With expanded exports, this year's current account surplus is projected to reach a record-high $135 billion, up significantly from last year's $118 billion. The Ministry of Economy and Finance explained, "Favorable conditions in the semiconductor industry leading to higher unit prices, combined with falling international oil prices, will improve the terms of trade and expand the surplus compared to last year."

The most notable indicator among the government's forecasts is construction investment. The government expects construction investment, which contracted by -9.5% last year, to rebound by 2.4% this year. After a sharp downturn last year, growth in construction investment is anticipated, driven by semiconductor plant construction and expanded budgets for social overhead capital (SOC). However, the rebound is expected to be limited to the public sector, and with continued polarization such as the accumulation of unsold housing in regional areas, it remains uncertain whether the recovery will be sustained in the second half of the year.

Private Consumption Remains in the 1% Low-Growth Range...Slower Job Growth

This year, private consumption is expected to grow by 1.7%, an improvement over last year's 1.3%-which was affected by political instability such as martial law and impeachment-but still within the low 1% growth range. A temporary recovery is anticipated in the first half, thanks to government stimulus measures such as consumption coupons and the effects of previous interest rate cuts. However, factors such as a rising exchange rate, persistent high inflation, and the sustainability of improvements in construction will determine the direction of domestic demand recovery and structural slowdown in the second half. Consumer prices are forecast to rise by 2.1% this year, the same as last year but slightly higher than the 2.0% forecast made in the second half of last year.

The number of employed persons is expected to increase by only 160,000 this year, down from last year’s increase of 190,000. Despite some easing in construction and manufacturing employment, concerns are rising about jobless growth as the service sector, which saw significant gains last year, is expected to adjust downward.

Record 633 Trillion Won to Be Injected for All-Out Economic Stimulus

The government plans to sharply increase the growth rate of total government spending, which has remained in the 2% range in recent years, to 8.1% in order to support the rise of the semiconductor industry to the world's No. 2 position. To promote economic recovery and stabilize livelihoods, the government will raise the investment scale of major public institutions to around 70 trillion won and supply 633.8 trillion won in policy finance for export and investment support, an increase of 16.1 trillion won compared to last year's revised plan.

A new Strategic Export Finance Fund will be established to support large-scale projects such as defense and nuclear power, accelerate restructuring in the petrochemical and steel sectors, and introduce a domestic production promotion tax system to prevent the hollowing out of domestic manufacturing. To further stimulate capital market investment, another key pillar of growth, the government will offer significant tax incentives for investments in the National Growth Fund through Individual Savings Accounts (ISA), and provide income deductions and low-tax separate taxation on dividend income for long-term investments in the National Growth Fund.

If the government's projections are realized, the growth rate, which plunged to 1% last year, will rebound sharply to 2% this year. However, achieving 2.0% growth this year does not mean a structural rebound in the declining potential growth rate. Some experts warn that this year's rebound is largely an optical illusion created by the global semiconductor boom, and that urgent structural reforms are needed to strengthen the weakened fundamentals of traditional export industries, which continue to contract. Lee Yoonsu, professor of economics at Sogang University, pointed out, "Along with strategic industry investment, mid- to long-term structural reforms are needed to address the structural polarization of exports and domestic demand."