Seoul, May 13 (IANS) The South Korean economy is projected to expand 2.5 per cent in 2026, supported by strong growth in the semiconductor industry and a recovery in domestic consumption, a state-run think tank said on Wednesday.

The Korea Development Institute (KDI) raised its 2026 growth forecast from 1.9 per cent projected in February, noting that the country has maintained solid export growth driven by semiconductors despite a challenging business environment, including Washington’s tariff policies.

The KDI said domestic consumption is expected to increase 2.2 percent in 2026, helped by the government’s subsidy policies, before rising 1.5 percent in 2027, reports Yonhap news agency.

Facility investment is projected to grow 3.3 percent in 2026 and 2.4 percent in 2027, driven by the semiconductor industry.

Consumer prices are expected to rise 2.7 percent in 2026 due to higher crude oil prices before easing to 2.2 percent in the following year.

The economy is projected to expand 1.7 percent in 2027, according to the KDI.

The think tank said economic growth could accelerate further if South Korean chipmakers promptly expand production capacity.

“Amid the sharp rise in demand for semiconductors, improvements in the country’s semiconductor production capacity could lead to stronger economic growth,” it added.

A prolonged crisis in the Middle East, however, could raise production costs and weigh on growth.

“As uncertainties surrounding the Middle East conflict remain elevated, a prolonged blockade of the Strait of Hormuz could increase production costs across the economy,” it said.

Meanwhile, South Korean stocks turned higher late Wednesday morning, rebounding from a sharp loss earlier in the day, as retail investors moved to purchase blue-chip shares, including Hyundai Motor and SK hynix.

After opening 1.69 percent lower, the benchmark Korea Composite Stock Price Index (KOSPI) had added 86.56 points, or 1.13 percent, to 7,729.71 as of 11:20 a.m.

The KOSPI snapped its five-day winning streak on Tuesday, after rising as high as 7,999.67 during intraday trading, as investors moved to take profits after a record-breaking run led by large-cap tech shares, including Samsung Electronics and SK hynix.

—IANS

na/