While the International Monetary Fund (IMF) slightly revised down its global economic growth forecast for next year (2026) from 3.1% to 3.0%, energy supply uncertainties and logistics disruptions were cited as additional downward factors. Despite these external uncertainties, the Korea Development Institute (KDI) assessed that the domestic economy's recovery trend is expanding, driven by robust semiconductor exports.

According to the 'Economic Trends August Issue' published by KDI on the 10th, the domestic economy's fundamentals are improving, centered on the semiconductor sector, despite external risks such as increased U.S. tariffs on South Korea and escalating tensions in the Middle East. KDI upgraded its assessment by one notch from 'modest recovery' in its July issue to 'expanding recovery trend.'

Production, Exports, and Investment Led by the 'Semiconductor Effect' All-industry production in June recorded a significant increase across both the service and manufacturing sectors, rising 4.2% year-on-year. Service sector production grew by 5.3%, while manufacturing also rebounded across multiple industries, including automobiles (12.6%) and machinery equipment (14.4%).

Exports and facility investment were also directly impacted by the semiconductor boom. In July, exports surged 178.2% on a daily average basis, driven by information and communication technology (ICT) products, recording a high overall export growth rate of 62.8%. Consequently, the trade balance achieved a surplus of USD 30.32 billion. Additionally, facility investment in June skyrocketed by 21.7% overall, led by a sharp increase in investments in semiconductor manufacturing equipment (58.5%), with KDI projecting that this favorable investment trend is likely to continue.

Consumption Indicators Improve... Durable Goods Sales Stand Out The improvement trend was also evident in domestic consumption. The retail sales index in June increased by 4.2% year-on-year. This was largely driven by a significant rise in the sales of durable goods (10.9%), such as passenger cars and home appliances. Demand for automobile purchases surged ahead of the normalization of parts supply chains and the scheduled end of the individual consumption tax cut on passenger cars, while major companies' voucher refund events drove up home appliance sales.

Employment and Prices Remain Causes for Concern On the other hand, risk factors remain in the employment and price sectors. The number of employed people in June increased by only 63,000, falling well below the first-quarter average (183,000). This is interpreted as a continued impact of declining employment in the manufacturing and construction sectors.

Thanks to falling international oil prices, the consumer price inflation rate in July saw a somewhat reduced rate of increase, but it remains at a high level of 2.8%. The core inflation rate, excluding food and energy, also slightly expanded from 2.5% to 2.6%.

KDI added that both domestic and external uncertainties—such as U.S. tariff measures, instability in the Middle East, high inflation rates, and an employment slowdown—are acting as major risk factors for the economy. However, in the case of construction investment, while residential building remains sluggish, a gradual improvement is being observed in the non-residential building sector.