South Korea says chip boom to lift growth as IMF raises 2026 forecast

Finance Minister Lee Hyoung-il met Marie Diron, global head of Moody's Sovereign and Sub-Sovereign Risk Group; James Longsdon, global group head of Sovereign and Supranational Ratings at Fitch Ratings; and Roberto Sifon-Arevalo, global head of sovereign analytics and research at S&P Global Ratings, according to the Ministry of Finance and Economy. The meetings took place on the sidelines of the IMF and World Bank Group Annual Meetings.

Lee said South Korea is projected to grow in the 3 percent range this year, supported by solid chip exports and increased facility investment, and that growth momentum is expected to strengthen over the medium to long term. He said the government would develop future growth engines through government-led initiatives, including the three megaprojects and the green transition, and would address disparities in housing, jobs and financial services while narrowing gaps among businesses, generations, income groups and regions.

The credit rating agencies expressed interest in how the government plans to use strong tax revenues from the chip supercycle, and Lee explained the Future Fund, which is to launch next year, the ministry said. The agencies said the semiconductor and AI supercycle had helped South Korea cope with challenges such as population aging and the war in the Middle East, and that the country maintains stable economic indicators and sound public finances. Their assessments of South Korea remain stable, according to the ministry.

At the IMF, Choi Ji-young, executive director of the IMF Asia and Pacific Constituency Office, said trade tensions, the Middle East crisis and the Russia-Ukraine war were weighing on the global economy, but South Korea's growth forecast had been revised upward. The IMF this week raised its 2026 forecast for South Korea to 3.3 percent, up 0.7 percentage point from its July projection, citing strong semiconductor exports driven by AI infrastructure demand that more than offset the fallout from the Middle East war.

Choi said AI-related investment is likely to continue for some time, citing robust spending on AI data centers and related infrastructure. He said building AI data centers can take around 10 years and that investment has only just begun. He also said South Korea could face a stock market correction, a current account adjustment and adverse effects on businesses if the AI boom faltered, but that the IMF expects AI investment to continue for a long time. Choi said the AI boom has expanded South Korea's fiscal room and advised countries experiencing growth not to focus excessively on debt-to-GDP ratios but to prioritize investment in innovation and growth. He said the IMF views the Future Fund positively, though it has not offered a detailed assessment, and that the latest forecast may be somewhat conservative because it does not fully reflect policies aimed at boosting growth.

At the International Monetary and Financial Committee meeting on Saturday, Lee stressed the need to address disparities for sustainable growth, his office said. The IMF said the global economy is showing signs of recovery but faces heightened uncertainty and downside risks, and called for policies to ensure macroeconomic and financial stability while pursuing structural reforms to support AI adoption and digital transformation, as well as international coordination on global imbalances and low-income country debt. Lee endorsed the IMF's recommendation to maintain fiscal soundness while enhancing private-sector growth potential, saying South Korea is pursuing responsible fiscal policies while promoting growth.

Lee met IMF Managing Director Kristalina Georgieva and First Deputy Managing Director Dan Katz. Georgieva noted the IMF's recent upward revision for South Korea and described the country's combination of mildly restrictive monetary policy and neutral fiscal policy as appropriate, according to the ministry. She said the Future Fund could serve as a buffer against future changes in economic conditions. Lee and Georgieva signed a letter of intent to continue cooperation on the AI Hub initiative, which aims to use AI technologies to address complex crises facing the international community with participation from international organizations and multilateral development banks. Lee said IMF participation would provide a platform for narrowing the global technology gap and that South Korea intends to support vulnerable countries' digital capabilities.

Lee also met officials from the European Bank for Reconstruction and Development and the Central American Bank for Economic Integration and signed separate memorandums of understanding on AI exchanges. EBRD President Renaud-Basso said South Korea is playing a leading role in the AI sector and that the bank hopes to enhance its capacity and expertise through cooperation, including in nuclear energy and reactor safety. Lee asked the EBRD to promote the use of South Korean firms' advanced technologies in its energy and nuclear projects. With CABEI President Gisela Sanchez, Lee signed an MOU on establishing an AI and digital transformation center and a separate agreement providing a legal basis for the bank's existing office in South Korea. Lee asked CABEI to identify specific AI projects, and Sanchez expressed hope South Korean firms would expand their presence in the region.

During his first major international event since taking office last month, Lee held 25 sessions, including 19 bilateral meetings, the ministry said. He met U.S. Deputy Treasury Secretary Francis Brooke after a two-plus-two meeting between senior South Korean and U.S. finance and monetary officials, and discussed AI cooperation with Swiss President Guy Parmelin. He exchanged views with Saudi Finance Minister Mohammed bin Abdullah Al-Jadaan on energy, defense, infrastructure and sovereign wealth funds, and with Polish Finance Minister Andrzej Domanski on defense cooperation.

Editor's Summary

South Korea is using a semiconductor and AI upcycle to support growth, with the finance minister telling global rating agencies that momentum will strengthen and the IMF raising its 2026 forecast to 3.3 percent. Seoul is also promoting a Future Fund and an AI Hub initiative to channel chip-related revenue and international cooperation into longer-term growth. The rating agencies and IMF said South Korea's economic indicators and public finances remain stable, while flagging potential risks if AI investment slows.