OECD sharply raises South Korea's 2026 growth forecast to 3.7%, but potential growth rate keeps falling

On September 23, the Organisation for Economic Co-operation and Development (OECD) released its interim economic outlook report, raising South Korea's 2026 growth forecast from 2.6% (projected in June) to 3.7%.

South Korea was the only country in the latest round to see its growth forecast revised upward by more than one percentage point, marking the largest increase among G20 nations. In March of this year, the OECD had forecast South Korea's growth rate at just 1.7%, meaning the projection has been raised by a cumulative two percentage points within six months.

The OECD attributed the upward revision to strong industrial production and export growth, which are driving South Korea's economic expansion this year. However, it noted that growth is expected to slow to 2.6% next year.

Export Boom Driven by Semiconductors

Reports indicate that South Korea's export performance has been robust, largely fueled by the semiconductor sector. The country's total exports for the full year are expected to approach $1 trillion.

Among G20 advanced economies, South Korea's projected growth rate for this year is the highest, significantly outpacing the United States (2.2%), the United Kingdom (1.1%), and Japan (0.8%). If the forecast materializes, South Korea's economic growth will surpass that of the United States for the first time since 2022.

For comparison, the Bank of Korea and the Korea Development Institute (KDI) have provided growth forecasts of 3.3% and 3.2%, respectively. Wall Street investment bank JPMorgan has also issued its own projections.

Structural Concerns Beneath the Surface

Despite the high growth figures, media reports highlight underlying structural issues in the South Korean economy.

According to data from the Bank of Korea, one in five South Korean companies that underwent external audits last year reported operating profits insufficient to cover interest expenses for three consecutive years. As of the end of June, the loan delinquency rate among vulnerable borrowers had risen to over 10%.

The Bank of Korea defines vulnerable borrowers as low-income individuals (in the bottom 30% of income) or those with low credit ratings who are multiple debtors holding loans from three or more financial institutions.

Reports note that the benefits of economic growth are concentrated in a few industries, while most economic actors are under pressure.

Declining Potential Growth Rate

A more concerning trend is the decline in South Korea's potential growth rate. According to OECD data released in June, South Korea's potential growth rate is expected to fall from 1.85% last year to 1.66% this year, and further to 1.52% next year. The projected potential growth rate for the fourth quarter of 2027 is just 1.46%—the first time the OECD's forecast for South Korea's potential growth rate has fallen below 1.5% since the organization began publishing the data.

This suggests that while headline growth figures appear strong, the internal growth momentum of the South Korean economy is weakening.

External Risks

Reports also warn that external variables—including a tightening global monetary policy cycle, geopolitical risks, and U.S. tariffs—could derail the growth trajectory above 3% at any time.

In response, South Korea's Deputy Prime Minister and Minister of Economy and Finance, Lee Joo-hyung, has identified raising the potential growth rate and addressing economic polarization as top priorities.

(Source: Cailianshe)