ECONOMY · 2026-10-18
IMF Forecasts South Korea’s Potential Growth Rate to Rise for Two Straight Years...The Effects and Limits of Semiconductor and AI Investment
The IMF expects South Korea’s potential growth rate to rise from 1.94% last year to 2.14% this year and 2.20% next year. Semiconductor and AI investment, along with productivity gains, are cited as key drivers, but whether that momentum spreads across the broader economy remains an open question.
South Korea’s potential growth rate may be ending its long downward trend and rising for two consecutive years, according to a new forecast.
The International Monetary Fund (IMF) estimated in its October World Economic Outlook that South Korea’s potential growth rate stood at 1.94% last year, will reach 2.14% this year, and rise to 2.20% next year. If this outlook becomes reality, it would mark the first back-to-back increase since 1986–1987.
Potential growth rate refers to the level of growth an economy can sustain over time without putting significant upward pressure on prices. It is different from the figure that shows how much gross domestic product (GDP) actually increased. According to IMF estimates, South Korea’s potential growth rate fell from 4.05% in 2010 to 2.97% in 2018, and then to 1.28% in 2020. This year’s forecast of 2.14% would be the highest level since 2021.
Investment in semiconductors and artificial intelligence (AI) is being cited as a major reason for the rebound. According to expert analysis reported by SmartBiz, Kim Kwang-seok, head of economic research at the Korea Economic and Industrial Research Institute, said that as AI has become a necessary input for production, both capital investment and total factor productivity have increased. Total factor productivity refers to improvements in production efficiency that cannot be explained simply by the amount of labor and capital投入. Huh Joon-young, professor in the Department of Economics at Sogang University, also said that since it is difficult to significantly expand labor supply in the short term, facility investment and productivity improvements are important.
However, the numbers vary depending on the institution making the forecast. The National Assembly Budget Office projected South Korea’s potential growth rate at 2.22% this year and 2.28% next year, while the OECD estimated 1.66% this year and 1.52% next year. This shows that forecasts can differ depending on the methods and assumptions used to analyze the same economy. For that reason, the IMF figures should be understood as a current outlook rather than a settled conclusion.
A more important question is whether the benefits of the rebound will spread across the wider economy. Experts pointed out that growth in semiconductors and AI could remain concentrated in only a few industries. Even if export and investment indicators improve, it is difficult to say with confidence that sentiment will improve equally for the service sector, small businesses, self-employed workers, and households vulnerable to weak domestic demand. That is why there are calls to examine industry-specific indicators more closely.
This outlook suggests that capital investment and productivity gains could lift South Korea’s potential growth rate. But for the upward trend to continue and translate into broader economic vitality, the foundation must go beyond the boom in a few sectors. To assess the Korean economy’s resilience more accurately, it will be important to watch not only the number itself, but also the scale of growth and how its benefits are distributed.
The International Monetary Fund (IMF) estimated in its October World Economic Outlook that South Korea’s potential growth rate stood at 1.94% last year, will reach 2.14% this year, and rise to 2.20% next year. If this outlook becomes reality, it would mark the first back-to-back increase since 1986–1987.
Potential growth rate refers to the level of growth an economy can sustain over time without putting significant upward pressure on prices. It is different from the figure that shows how much gross domestic product (GDP) actually increased. According to IMF estimates, South Korea’s potential growth rate fell from 4.05% in 2010 to 2.97% in 2018, and then to 1.28% in 2020. This year’s forecast of 2.14% would be the highest level since 2021.
Investment in semiconductors and artificial intelligence (AI) is being cited as a major reason for the rebound. According to expert analysis reported by SmartBiz, Kim Kwang-seok, head of economic research at the Korea Economic and Industrial Research Institute, said that as AI has become a necessary input for production, both capital investment and total factor productivity have increased. Total factor productivity refers to improvements in production efficiency that cannot be explained simply by the amount of labor and capital投入. Huh Joon-young, professor in the Department of Economics at Sogang University, also said that since it is difficult to significantly expand labor supply in the short term, facility investment and productivity improvements are important.
However, the numbers vary depending on the institution making the forecast. The National Assembly Budget Office projected South Korea’s potential growth rate at 2.22% this year and 2.28% next year, while the OECD estimated 1.66% this year and 1.52% next year. This shows that forecasts can differ depending on the methods and assumptions used to analyze the same economy. For that reason, the IMF figures should be understood as a current outlook rather than a settled conclusion.
A more important question is whether the benefits of the rebound will spread across the wider economy. Experts pointed out that growth in semiconductors and AI could remain concentrated in only a few industries. Even if export and investment indicators improve, it is difficult to say with confidence that sentiment will improve equally for the service sector, small businesses, self-employed workers, and households vulnerable to weak domestic demand. That is why there are calls to examine industry-specific indicators more closely.
This outlook suggests that capital investment and productivity gains could lift South Korea’s potential growth rate. But for the upward trend to continue and translate into broader economic vitality, the foundation must go beyond the boom in a few sectors. To assess the Korean economy’s resilience more accurately, it will be important to watch not only the number itself, but also the scale of growth and how its benefits are distributed.
Related search terms
#South Korea potential growth rate#IMF South Korea growth forecast#Korea potential growth rate rises#semiconductor investment South Korea#AI investment and productivity#South Korea economy outlook#potential growth rate explained