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‘Transitory euphoria’: South Korea’s strong economic outlook masks key hurdles

South Korea’s economy faces uncertainties from rising inflation, a weakening won and uneven performance across sectors, even as it grows stronger than expected this year,…

By Samantha Johnson / May 29, 2026

South Korea’s economy faces uncertainties from rising inflation, a weakening won and uneven performance across sectors, even as it grows stronger than expected this year, according to analysts.

The Bank of Korea on Thursday revised its economic growth outlook for this year to 2.6 per cent, up 0.6 percentage points from its forecast three months ago, citing robust exports driven by booming semiconductor demand and government supplementary spending aimed at offsetting the shocks from the Middle East conflict.

South Korea’s economy expanded 1.7 per cent in the first quarter compared with the previous quarter – the strongest quarterly jump since 2021 – and 3.6 per cent from the same period a year earlier. It grew 1 per cent for the whole of 2025.

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The central bank also raised its inflation forecast for this year to 2.7 per cent from 2.2 per cent due to the ongoing impact of the war.

“If the crisis in the Middle East is resolved early, this year’s growth rate could exceed 2.6 per cent,” the central bank’s governor Shin Hyun-song told journalists on Thursday.

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He added that growth would depend on the sustainability of strong semiconductor demand.

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