Chip boom prompts Moody’s to lift Korea growth to 3.5%

Moody's raised South Korea's 2026 GDP growth forecast to 3.5% from 2.5%, citing an AI-driven memory chip boom expected to last into mid-2027. The ratings agency also projected 2.6% growth in 2027 and a narrower fiscal deficit of 3.8% of GDP, up from an earlier 3.9% target, as export revenue eases budget pressure.

Ratings agency expects export upcycle to run into mid-2027, easing pressure on government finances Moody’s has raised South Korea’s 2026 growth forecast to 3.5 percent from 2.5 percent, betting that the AI-driven memory chip boom will extend into mid-2027. Earlier this month, the ratings agency projected that Korea's GDP would grow 3.5 percent this year and 2.7 percent next year in its periodic review of the country's sovereign credit ratings. The latest outlook marks a full percentage-point increase from Moody's May forecast of 2.5 percent growth for the Korean economy in 2026. It also nearly doubles the agency's projection from February when it estimated growth at 1.8 percent. "Going forward, the chip cycle is expected to remain strong at least into the middle of 2027, with continued demand for chips and limited viable alternatives to Korean high-end memory suppliers," the report said. "While domestic consumption growth has lagged the stark rise in exports, we expect headline GDP to expand 3.5 percent in 2026 and 2.6 percent in 2027 as the export upcycle continues." Moody's further highlighted that merchandise exports — a key driver of headline growth — were up 51 percent year on year in the first six months of this year, underpinned by strong growth in semiconductors. It attributed the stronger growth outlook to increased demand stemming from hyperscalers' AI investment buildout, as well as a memory chip shortage that has driven stronger chip prices. On the fiscal front, strong revenue from the chip boom has eased pressure on the government's budget. Korea is expected to post a slightly narrower fiscal deficit of 3.8 percent of GDP in 2026, compared with the original target of 3.9 percent. "Continued revenue outperformance and improved growth prospects may result in even stronger fiscal consolidation," Moody's explained. Moody's also noted that government-led chip-focused megaprojects aim to create new growth engines while promoting more balanced development beyond the capital region. The initiative, unveiled in June, calls for a new semiconductor belt in the Honam region of southwestern Korea, an advanced semiconductor packaging hub in the Chungcheong region, and a nationwide expansion of AI data centers. "The strategy represents ongoing and concerted policy efforts to keep abreast of technological innovation through a thrust on artificial intelligence and other measures to boost productivity and lift potential growth, if successfully implemented," it said. Moody's 3.5 percent growth forecast for this year is higher than the Korean government's 3 percent projection, which was itself raised from 2 percent in July. The International Monetary Fund also raised its 2026 growth forecast for Korea to 2.6 percent from 1.9 percent in July, while Morgan Stanley lifted its forecast to 3.4 percent from 2.8 percent earlier this month. It is also 0.3 percentage point higher than the 3.2 percent average growth forecast for this year made by eight major investment banks in July and compiled by the Korea Center for International Finance. Moody's previously affirmed Korea’s sovereign credit rating at "Aa2," its third-highest rating. The rating agency further emphasized that the report does not constitute a credit rating action. silverstar@heraldcorp.com