South Korea GDP beats estimates as AI chip exports fuel 3.7% growth

South Korea's economy grew faster than expected in the second quarter, powered by AI-driven semiconductor exports that offset weakening domestic demand.

South Korea's economy expanded 0.6% in the second quarter from the prior three months, beating the 0.4% consensus forecast, as surging AI-chip exports from Samsung Electronics and SK Hynix offset a pullback in private consumption and construction investment.

"The above-consensus growth figure should strengthen the case for the central bank to deliver a back-to-back interest rate increase next month," said Jin-Wook Kim, an economist at Citigroup.

On an annual basis, gross domestic product rose 3.7% in the April-to-June period, also topping the 3.4% median estimate in a Wall Street Journal survey. The reading eased only slightly from the revised 3.8% expansion in the first quarter. Exports of semiconductors and machinery, along with investment in research and software development, sustained solid growth, while private consumption weakened and construction investment contracted.

The data bolsters the case for further monetary tightening after the Bank of Korea raised its policy rate in July for the first time in more than three years. The government earlier this month lifted its 2026 annual growth forecast to 3.0% from 2.0%, and BOK Governor Shin Hyun-song said the central bank would revise up its 2.6% growth projection next month.

Rate Path Hinges on Inflation Data

Whether the BOK delivers another hike at its August meeting will depend on inflation expectations data due next week and consumer price figures in early August, said Krystal Tan, an economist at ANZ. "If these point to stronger pass-through and rising inflation expectations, the case for an August hike will strengthen," Tan said.

Citigroup's Kim expects quarter-point increases in August and November this year and another in January 2027, maintaining Citi's 2026 growth forecast of 3.7% for South Korea. Barclays economist Bum Ki Son cautioned that higher gross domestic income alongside the stronger-than-expected GDP reading "leaves the glass only half full" for further rate increases, noting a historically limited spillover effect of corporate earnings into household income and consumption.

AI Boom Anchors Export Engine

South Korea's position as home to the world's two largest memory-chip makers has made it a prime beneficiary of the global AI infrastructure buildout. Global investment in AI data centers and high-performance computing continues to fuel demand for advanced memory chips, providing a strong foundation for export-led growth even as domestic demand shows signs of moderation.

The sustained strength in semiconductor exports helped offset broader headwinds, including ongoing geopolitical tensions in the Middle East that have created uncertainty for global trade and energy markets. The last time South Korea's chip exports drove a comparable growth cycle was in 2021-2022, when semiconductor shipments surged more than 30% annually and GDP expanded at a 4.1% pace.

This article is for informational purposes only and does not constitute investment advice.