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Korea looks to chip exports, AI investment to double growth rate to 2 percent this year

Published: 09 Jan. 2026, 18:19 Updated: 11 Jan. 2026, 14:35

Export-bound containers are seen in Pyeongtaek, Gyeonggi, on Jan. 9. [NEWS1]

Korea is banking on a rebound in exports, led by semiconductors, and surging investment in AI to nearly double its economic growth this year, as the government unveiled a more ambitious forecast and a sweeping strategy to reverse its long-term slowdown, including easing procedures for E-7 visa issuance.

Still, the high won-dollar exchange rate and global trade uncertainties pose risks, and experts warn that bold measures are needed to reverse the country’s long-term decline in potential growth.

The government on Friday projected Korea’s real GDP would grow 2 percent this year, up 0.2 percentage points from its previous forecast of 1.8 percent. Last year’s growth rate is estimated at 1 percent, 0.1 percentage points higher than earlier expectations.

AI, chips power brighter outlook

The upward revision was largely driven by a sharp rebound in exports. Korea’s exports in 2025 rose 3.8 percent year-on-year to a record $709.7 billion, and the government expects outbound shipments to grow another 4.2 percent this year, again reaching a new high. Despite sluggish global trade, semiconductor exports are projected to remain robust due to the global expansion of AI investment.

On top of booming exports, a recovery in domestic demand is bolstering the government's optimism. Private consumption — the core of domestic demand — rebounded after contracting in the first quarter of 2025, rising 1.3 percent for the year. With signs of improving consumer sentiment and a revitalized stock market, the government expects consumption growth to approach the high 1-percent range in 2026.

Construction is in full swing on Jan. 9 at the site of the Yongin semiconductor cluster industrial complex in Cheoin District, Yongin, Gyeonggi. [JOINT PRESS CORPS]

“The construction sector, which dragged down growth by 9.5 percent last year, is also expected to return to positive territory this year,” said First Vice Minister of Economy and Finance Lee Hyoung-il. “We also expect to see the impact of expanded public institution investment and the launch of the National Growth Fund.”

The National Growth Fund is a joint government-private initiative set to reach 150 trillion won ($102.9 billion) over the next five years to make long-term investments into high-tech sectors.

The government plans to support the recovery with an 8.1 percent increase in total fiscal spending and 633.8 trillion won in policy finance, up 16.1 trillion won from last year.

The government’s growth outlook surpasses those of major domestic and international institutions, including the International Monetary Fund, the Korea Development Institute and the Bank of Korea, all of which project 1.8 percent growth. The upward revision reflects optimism fueled by record exports and soaring stock prices.

Hurdles remain on path to recovery

Still, experts caution against complacency. Korea’s growth has remained stuck around 2 percent for four consecutive years, and last year’s 1 percent growth rate fell short of advanced economies such as the United States, which grew 2 percent, and Japan, which expanded 1.3 percent, while Taiwan surged with a sharp 7.3 percent increase.

Given last year’s weak performance, even the 2 percent forecast for 2026 may not signal a firm recovery. Experts say the key challenge is ensuring that export momentum translates into stronger domestic demand.

“Excluding semiconductors, most sectors are now feeling the impact of tariffs, and it's difficult to gauge how severe that impact will be,” said Kim Sang-bong, an economics professor at Hansung University. “The continued high won-dollar exchange rate could lead to inflationary pressures, which may dampen consumption more than expected.”

Deputy Prime Minister and Finance Minister Koo Yun-cheol, second from left, presides over a market conditions review meeting at the Korea Federation of Banks in Jung District, central Seoul, on Jan. 8. [MINISTRY OF ECONOMY AND FINANCE]

While economic conditions are expected to improve somewhat this year, the critical question is whether Korea can reverse its long-term decline in potential growth. Korea’s potential growth rate, which stood in the 3-percent range in 2010, has since fallen to the high 1-percent range due to shrinking labor supply and weak investment. At this rate, the figure could fall to zero in the 2040s — a sign that the economy is losing its growth engine.

The government acknowledged the urgency. In its 2026 economic strategy released on Friday, it designated restoring potential growth as its top priority. It plans to provide all-around support — financial, fiscal and tax-related — to help Korea gain a competitive edge in semiconductors. A presidential special committee on semiconductor competitiveness will be launched, and a master plan is scheduled to be drawn up this year.

Growth strategy hinges on talent and technology

Plans to streamline and expand E-7 visa issuance are underway as part of efforts to attract skilled foreign workers. This is especially targeted toward students who have completed and passed the Ministry of SMEs and Startups’ K-Export Specialist Academy training program in export-related jobs, as well as workers in the industrial sector, such as welders and painters in construction machinery manufacturing.

The visa quota for region-specific visas, which allow foreign nationals to reside and work in areas with declining populations, will also be expanded. The government is currently piloting a metropolitan visa program that grants broader local governments partial autonomy to set visa requirements, with the aim of fully institutionalizing it in 2027.

The number of universities eligible for the K-Star visa track — which allows international students to obtain permanent residency in as little as three years, down from the usual six — will be expanded from five to 32.

Foreign workers harvest chives in season at a farm in Yeonil-eup, Nam District, Pohang, North Gyeongsang, on Jan. 8. [NEWS1]

The government will also accelerate the construction of AI infrastructure. A public-private special-purpose entity will be established to build a national AI computing center. In manufacturing — a sector where Korea aims to become No. 1 in physical AI — the government will boost cooperation between academia, industry and research in seven strategic areas, including robotics, automobiles and shipbuilding.

“Korea has a solid manufacturing base and ample data, which gives us a strong edge in physical AI,” said Deputy Vice Finance Minister Kang Ki-ryong.

The government’s 15 cutting-edge innovation initiatives unveiled last August — including next-generation power semiconductors, superconductors, green hydrogen and small modular reactors — will see increased investment this year to accelerate results. The government plans to channel capital from the newly established 30 trillion-won National Growth Fund and the existing Korea Fund of Funds into these areas, while easing regulations in the bio sector.

Next-generation power semiconductors and liquefied natural gas cargo containment systems will be designated as national strategic technologies, thereby qualifying them for significantly higher tax credits. For SMEs, research and development (R&D) tax credits will range from 40 to 50 percent, while large and mid-sized companies will receive 30 to 40 percent — far more than the current maximum of 2 percent for general R&D. Companies can also claim tax deductions for investments in facilities such as factories and research centers.

The government will also establish a strategic export finance fund in the first half of the year to support Korean firms competing in large-scale defense and nuclear energy projects. Companies receiving government funding or guarantees will be required to reinvest part of their profits in SMEs to help strengthen the industrial ecosystem.

“We will push forward with a financial transformation that channels capital into advanced industries, startups and capital markets, helping to restore Korea’s potential growth rate,” said Deputy Prime Minister and Finance Minister Koo Yun-cheol.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY JANG WON-SEOK [[email protected]]