South Korea Economy Slows Despite AI-Driven Export Boom

The South Korea economy is expected to lose momentum during the second quarter of 2026 as weaker domestic demand offsets exceptional export growth driven by artificial intelligence-related semiconductor investment.

A Reuters survey forecast quarterly gross domestic product growth of 0.4%, slowing sharply from the revised 1.8% expansion recorded during the first quarter. Annual growth is expected to ease to 3.5% from 3.8%.

Exports increased by approximately 71% in June, supported by a near-200% surge in semiconductor shipments to USD44.8bn as global AI investment accelerated.

However, economists said subdued household consumption and employment weakness outside the semiconductor sector have created a two-speed, or K-shaped, economic recovery.

Analysts expect South Korea's economy to expand by around 2.8% for the full year, below the government's 3% target, while anticipating one further interest-rate increase from the Bank of Korea.