May28, 2026Research Department &Office of Economic Modeling and Policy Analysis
KoreaEconomicOutlook (May 2026)
-Headwinds from the Middle East, Tailwinds fromChips-
Summary
▣Korea’seconomic growththis yearisprojectedat2.6%,a sharp upward revisionfrom the February forecast of 2.0%.
￭Despite the Middle East shock, growth is set to strengthen on the back of the robustsemiconductor cycle.
▣CPI inflationthis yearisexpected tobe2.7%, well above the February projection of 2.2%.
￭Therevision reflects thedirect and indirecteffectsof the oilprice shock,along withagradualbuildup ofdemand-side pressuresfrom improving economicconditions.
▣The projection path is subject to high uncertainty, particularly surrounding thesemiconductor cycle and the Middle East war.
KoreaEconomicOutlookHeadwinds from the Middle East, Tailwinds from Chips
IndigoBook
May2026
Ⅰ. Economic Conditions....................................................2Ⅱ. EconomicOutlook..........................................................4Ⅲ.RiskstotheOutlook......................................................7Ⅳ.Scenario Analysis............................................................8
ForecastSummaryQuarterlyForecastsfortheOne-Year-AheadHorizon
KeyAssumptionsof the Outlook
▢[Middle East Situation]Following the U.S.–Iran provisional ceasefire in early April, with negotiationson the end of hostilities and the reopening of the Strait of Hormuz currentlyunderway, militarytensions in the region are assumed to ease gradually as the negotiations advance.
▪Transit through the Strait of Hormuz, currently at around 10% of pre-war levels, is assumed to recovergradually to around 60% by Q4*.
▪Under these assumptions, Brent crude is assumed to rise to an average of USD 103/barrel in Q2 beforeeasing to around USD 95/barrel in H2.
▢[U.S.TariffPolicy] U.S.tariffson Koreaare assumed to be maintainedat current levels (temporary10%*, autos 15%, steel 50%, etc.) until July,when an alternative tariff is imposed**,restoring the tariffratesto levels prevailing prior to the February 20 ruling that invalidated the reciprocal tariffs.
*In the February projection, it was assumed that the U.S. government would raise the temporary tariff from10% to 15% as it had signaled;however, the tariffhas remained at 10% to date, reflecting the Middle Eastwar and pushback from affected countries.
** A Section 301 investigation under the Trade Act is currentlyin progress, with an alternative tariff expected upon theexpiration of the temporary tariffin July.
⇒As a result, the average U.S. tariff rate on Korea thisyearis marginally belowthe February assumption.
Note:1)Based on 2024 U.S. importvalues.Source:Research Department
Sources:Bloomberg,Research Department
▶The Koreaneconomy is projected toexpand by2.6%this year—well above theFebruary forecast of 2.0%—driven byrobustsemiconductor exports,whilegovernment measures, including the supplementary budget, partially offset theMiddle East-driven supply shock*.
*Production disruptionsareemerging in certain industries amid cost increases and supply shortagesstemming from global energy marketinstability.
▶CPI inflation isexpectedtobe2.7%,significantly above the Februaryforecastof2.2%, reflecting a sharp rise in petroleum prices and the lagged pass-through oftheoil priceshock to other items.
Ⅰ.Economic Conditions
▢The global economy is expected toslow,as the commodity supply disruptionstemming from the Middle Eastgradually weighs on activity, despite robust AI-related investment.
▪The United Statesis projected to growat around 2%,below the previousforecast—AI-related investment remains a powerful tailwind,but thefalloutfrom theMiddle Eastwarcontinues to dragon growth.Theeuro areafacesheightened downside pressure on growth from higher energy prices.Chinaisexpected tomaintain growth in the mid-4% range, supported by continuedexport strength, with substantial crude oilstockpiles providing a cushionagainst the Middle East shock.
▪Global tradegrowthis expected toslowmoderatelyfrom last yearasthe effectsofthe Strait of Hormuz closure gradually materialize.Theglobal semiconductorindustryis projectedtoremain in anextendedupcycle, driven by the broadeningof AI applications and the scale-up of infrastructure investment by major Big Techfirms.
▪Global oil prices(Brent crude)areexpected toremain elevated through mid-yearbefore easing as Strait of Hormuz transit recovers, but the pace of decline is likelyto be modest given the time required for energy-infrastructure repair and therestockingdemandfrom major importers.
▢On the domestic front,marketinterest rates have risen and exchange ratevolatility has widened following the outbreak of the Middle East war;nonetheless, domestic demand conditions are expected to improve, supportedbystrong IT corporate earnings, equity market gains, and the supplementarybudget.
▪Nominal wage growthis expected toaccelerate,drivenprimarilybythe robustearnings of majorITcompanies.