[Insight & Opinion] A Glimpse into the World of 2026

As the new year begins, examining how the world will unfold in 2026 is not just a matter of curiosity, but a rational process necessary for setting plans for the year ahead. Since the future develops as a continuation of the present, making the most of current information to anticipate how the year will progress yields the following outlook.

First, from a political perspective, local elections are scheduled for June 3 this year. According to a public opinion poll released by Gallup Korea on December 19 last year, the Democratic Party of Korea had an approval rating of 40%, while the People Power Party stood at 26%. Ahead of the local elections held on June 1, 2022, Gallup Korea announced on May 20 that the People Power Party had an approval rating of 43% and the Democratic Party of Korea 29%. Compared to the recent survey, both parties' ratings have dropped by 3 percentage points, and the ruling and opposition parties have switched positions. Taking these differences into account, one can infer possible outcomes for this year's local elections.

South Korea's economic growth rate is expected to rise from around 1% last year to about 2% this year. However, the export growth rate is projected to be lower than last year, with domestic demand expected to contribute more to growth. Nevertheless, it seems unlikely that the public will experience a significant improvement in economic conditions or household livelihoods this year. Considering the base effect of last year's low growth, this year's growth rate is still expected to fall short of the potential growth path. Additionally, due to semiconductor-driven growth and polarization in the manufacturing sector, significant improvement in employment conditions is unlikely.

The exchange rate, which surprised the public in the second half of last year, is expected to stabilize somewhat in the lower 1,400 won range this year. The reason is that, while the United States is expected to cut interest rates twice next year, Japan is likely to raise rates twice. As a result, yen funds invested abroad are expected to return to Japan, and this yen carry could lead to a stronger yen. Consequently, the Korean won is also expected to strengthen. Meanwhile, individual investors' investments in U.S. stocks are expected to weaken compared to last year due to increased risks from the AI bubble, which should also contribute to a more stable exchange rate in the second half of the year compared to last year.

Last year, the KOSPI index recorded a 75.6% increase, and more than half of South Korea's securities companies forecast that the market will continue its significant upward trend, surpassing 5,000 points. The basis for this optimistic outlook is, first, the expectation that the semiconductor industry, which is currently driving the stock market, will achieve record results this year. In particular, there is a dominant view that semiconductor prices will maintain a strong upward trend at least through the second quarter. Additionally, according to a Bloomberg survey, all stock market experts who responded expect the S&P index to continue its four-year upward trend this year, with an average projected increase of 8%.

According to statistics from the Korea Real Estate Board, apartment prices in Seoul surged by 8.5% last year despite two rounds of government regulatory measures. This year, the number of new apartment units in Seoul is expected to be only 40% of last year's figure, according to official Seoul city data. Moreover, in the private housing market, supply is projected to decrease to just 10% of last year's level. As a result, apartment prices are expected to continue rising, with a decrease in jeonse (long-term lease) supply and a continued shift from jeonse to monthly rentals.

Externally, China is expected to implement large-scale stimulus measures this year to overcome severe domestic economic stagnation, raising hopes for improved exports to China. Overall, this year, economic growth will be somewhat higher, driven by domestic demand, but the likelihood of improvement in employment conditions is low. The stock market boom is expected to continue, and the exchange rate should be more stable than last year. However, due to ongoing polarization in housing prices and wages, it will be difficult for most households to see an improvement in their standard of living.

Kim Dongwon, Former Invited Professor at Korea University