South Korea's Gross Domestic Product (GDP) surged by 1.7% quarter-on-quarter in the first quarter of 2026, driven by robust chip exports and increased investment in artificial intelligence, according to ING’s Senior Economist Min Joo Kang [1]. This strong performance prompted ING to revise its 2026 GDP growth forecast upward from 2.0% year-on-year to 2.8% year-on-year [1]. Despite the positive momentum, ING anticipates a slowdown in GDP growth for the second quarter of 2026 due to energy disruptions impacting the petrochemical and manufacturing sectors [1].
The Korean government responded to these disruptions by implementing a temporary export ban on Naphtha and increasing oil and gas imports from outside the Middle East. However, these measures have not been sufficient to maintain manufacturing activity at full capacity [1]. ING warns that prolonged supply disruptions could hinder chip production and dampen AI-related investment, which could have a more severe impact on South Korea’s economy compared to other major economies due to its heavy reliance on the chip industry [1].
On the inflation front, ING expects the monthly Consumer Price Index (CPI) to rise by at least 0.7% month-on-month in April 2026, attributing the increase not only to higher energy prices but also to 'chipflation'—inflation driven by the chip sector [1]. Despite government measures, inflation is expected to remain lower than in other Asian energy-importing countries [1].
The K-shaped recovery complicates the Bank of Korea’s (BoK) policy path, as strong GDP growth and rising inflation expectations increase the likelihood of policy rate hikes in the second half of 2026. ING maintains its expectation that the BoK will prioritize its inflation-targeting mandate and deliver rate hikes if growth and inflation continue to exceed potential [1].
CONCLUSION
South Korea’s strong Q1 2026 GDP growth, fueled by chip exports and AI investment, has led ING to raise its full-year forecast and anticipate further monetary tightening by the Bank of Korea. However, ongoing energy disruptions and rising inflation pose risks to sustained growth, making the policy outlook more challenging. Market participants should monitor inflation trends and BoK policy signals closely.