Chip-driven growth faces headwinds from weak domestic demand, high oil prices

Korea's economy is expected to maintain strong growth in the fourth quarter on the back of robust semiconductor exports, but weak domestic demand and rising oil prices are emerging as renewed risks, analysts said Sunday.

The Organization for Economic Cooperation and Development (OECD) recently raised its 2026 economic growth forecast for Korea to 3.7 percent from its June forecast of 2.6 percent, citing strong industrial production and export growth.

The latest projection, announced Wednesday, represents a 1.1 percentage-point increase, the largest upward revision among the group of 20 major economies.

On the same day, the Asian Development Bank also raised its growth forecast for Korea to 3.2 percent from its July projection of 2.6 percent, citing strong exports and corporate earnings amid the artificial intelligence (AI) boom.

Strong export growth, driven largely by semiconductors, has been a key factor behind the positive outlook.

According to the Ministry of Trade, Industry and Resources, Korea's exports reached a record $98.25 billion in August, up 68.7 percent from a year earlier. Semiconductor exports surged 209 percent year-on-year to a record $46.65 billion. The increase was driven by stronger demand for advanced memory chips as global investment in AI data centers expands.

Analysts, however, expect the recovery in domestic demand to lag behind the export rebound, with elevated global oil prices stemming from geopolitical tensions posing upside risks to inflation and weighing on consumer spending.

Brent crude has traded above $100 per barrel for much of this month amid persistent concerns over disruptions to oil supplies from the Middle East. Higher oil prices, coupled with a weaker won, could add to inflationary pressures and weigh on household spending.

In its latest report, the OECD also raised its forecast for Korea’s consumer price inflation this year to 3.0 percent from 2.6 percent, reflecting a stronger growth outlook and higher projections for global energy prices.

Analysts say a key question for the fourth quarter is how quickly the export-led recovery spreads to the broader domestic economy. They noted that strong semiconductor demand has provided a powerful boost to exports, manufacturing activity and facility investment, but the momentum has so far had a limited impact on consumer spending, job creation and household incomes.

“Consumption is recovering relatively slowly due to high interest rates and high oil prices, while semiconductor-led exports and strong facility investment are expected to drive the economic recovery,” Ha Geon-hyung, a researcher at Shinhan Securities, said in a recent report. “The burden of tighter financial conditions is likely to fall more heavily on consumption than investment.”