South Korea Economy Rebounds on Semiconductor Export Surge Amid Middle East Risks

South Korea’s economy likely returned to growth in the first quarter of 2026, driven by strong semiconductor exports and stable domestic demand, according to a Reuters poll of economists. The country, Asia’s fourth-largest economy, is estimated to have expanded by 1.0% on a seasonally adjusted basis from January to March, recovering from a contraction in the previous quarter. Forecasts varied, ranging between 0.2% and 1.3%, reflecting cautious optimism among analysts.

On a year-on-year basis, South Korea’s gross domestic product (GDP) is projected to have grown 2.7%, accelerating from 1.6% in the final quarter of 2025. Economists attribute this rebound largely to the booming semiconductor sector, which continues to act as a key growth engine. Export data supports this trend, with shipments rising modestly in January and February before surging significantly in March.

Semiconductor exports soared by 151.4% year-on-year to reach a record $32.83 billion, accounting for nearly 40% of total monthly exports. This surge was fueled by rising memory chip prices and increasing global demand for servers linked to artificial intelligence (AI) investments. Analysts also noted that private consumption and investment indicators point to solid economic performance during the quarter.

Despite the positive outlook, risks remain. Economists warn that escalating geopolitical tensions in the Middle East, particularly the U.S.-Israeli conflict with Iran, could disrupt global energy markets and impact South Korea’s economy. The country relies heavily on oil imports, with around 70% sourced from the Gulf region, making it vulnerable to supply shocks and rising energy prices.

While the immediate impact is expected to be limited to the second quarter, higher energy costs could weigh on economic growth and increase inflation pressures throughout the year. However, supportive fiscal policies are expected to help cushion the economy against these external risks.

Overall, economists forecast South Korea’s GDP growth to average around 2.0% in 2026, slightly above the International Monetary Fund’s (IMF) projection of 1.9%. Inflation is also expected to rise to 2.4%, reflecting ongoing global uncertainties and energy market volatility.