[Current Economic Situation]
▶ Economic growth gains momentum despite challenges, including the Middle East conflict at the beginning of the year
º Growth: The economy rebounded quickly from the impact of the martial law declaration, with growth gaining momentum from the second half of last year. Growth accelerated further in the first half of this year despite adverse factors, including the conflict in the Middle East.
º Exports: Korea’s exports ranked fifth in the world during the January-April period, up from seventh, surpassing Japan and Italy. The current account surplus reached a record high in the January-May period, already exceeding the full-year total recorded last year.
º Stock Market: Supported by strong performance in key industries and government initiatives to boost the stock market, Korea’s stock market capitalization rose from 13th to seventh globally. Since the inauguration of the current administration, Korea has recorded the strongest stock market performance among major economies.
º Inflation: Despite higher oil prices stemming from the conflict in the Middle East, inflation remained lower than in major economies, as policy measures such as price caps and fuel tax cuts contain inflationary pressures.
[Policy Responses in the First Half of 2026]
▶ Successful and decisive response to the unexpected challenge posed by the Middle East conflict
º An emergency economic response framework led by the President mobilized all available fiscal resources and policy tools.
- Implemented a price cap on petroleum products (March), fuel tax cuts (March), introduced emergency supply and demand adjustment measures for naphtha and petrochemical feedstocks (starting in March), and secured alternative crude oil supplies (starting in Mar.), thereby minimizing the impact on people’s livelihoods.
- Introduced a KRW 26.2 trillion supplementary budget in response to the conflict, enabling the swift provision of high oil price relief payments with 99 percent of the central government budget executed by the end of May and helping ease the burden on low-income households.
▶ Accelerating policy initiatives to revive potential growth
º Potential growth: Laid the foundation for a hyper-innovation economy by accelerating AI transformation (AX) and green transformation (GX), while channeling more capital into productive sectors through the rollout of the National Growth Fund.
º Structural reform and reducing economic polarization: Advanced labor market reforms and balanced regional development policies, while supporting inclusive growth through measures to help young people build assets and strengthen retirement income security.
º Risk management: Safeguarded financial and foreign exchange (FX) market stability by introducing a three-pronged tax support package for FX stability (March 31), which included the launch of domestic market return accounts, and by adjusting Korean Treasury Bond issuance.
[2026 Revised Outlook and 2027 Economic Outlook]
1) (Growth) The economy is projected to grow 3.0 percent in 2026 amid continued strength in AI-driven semiconductor exports, with policy measures, including the supplementary budget, helping cushion downside risks posed by the Middle East conflict.
2) (Employment) Employment is projected to increase by 150,000 in 2026, as weak job growth in April and May due to the Middle East conflict and the delayed recovery in the construction sector partly offset employment gains from stronger economic growth.
3) (Inflation) Inflation is projected to rise by 2.6 percent in 2026, reflecting increased oil price volatility driven by the Middle East conflict.
4) (Current account) The current account surplus is projected to reach USD 290 billion in 2026 (a new record high), far exceeding the initial forecast of USD 135 billion, supported by strong performance in the first half of the year and continued strength in the semiconductor sector.
[Economic Growth Strategy for the Second Half of 2026]
The Economic Growth Strategy aims to make 2026 the starting point for Korea’s major economic leap and reinforce the country’s position as an indispensable player in the global economy. Under the “3·4·5 Vision,” the government will seek to achieve a 3 percent potential growth rate, position Korea as the world’s fourth-largest exporter, and raise per capita income to USD 50,000.
To this end, the Economic Growth Strategy for the Second Half of 2026 is structured around three policy pillars and six key tasks. The key policy measures are as follows:
I. Post-Conflict Strategy
i. Maintaining Macroeconomic Stability
- Establish an integrated policy response framework tailored to the evolving economic environment and ensure the coordinated implementation of macroeconomic policies.
① Establish a ministerial-level consultative body on macroprudential policy.
② Maintain a proactive fiscal policy stance, underpinned by favorable tax revenue conditions.
- Enhance policy measures to mitigate the risks of elevated inflation, a weak Korean won, and high interest rates in the aftermath of the Middle East conflict.
① Contain inflation by stabilizing fuel and grocery prices while easing cost-of-living burdens; a package of livelihood stability measures for the Chuseok holiday will be prepared in
September.
② Mitigate the impact of a weak Korean won through market stabilization measures and support to ease the burden on small and medium-sized enterprises (SMEs); extend the
exemption from the Macroprudential Stability Levy by three months, and extend by six months the interest on foreign currency reserve deposits, along with the temporary
supervisory relief measures for stress testing.
③ Ease the impact of high interest rates by improving financial access for vulnerable borrowers and strengthening the management of delinquent loans.
- Support housing stability by expanding housing supply and promoting the efficient use of real estate.
① Accelerate housing supply in the third-generation new towns and urban areas.
② Develop balanced improvement measures for real estate transaction and holding taxes.
ii. Securing Supply Chain Resilience and Energy Security
- Build resilient supply chains through item-specific and phased measures to reduce vulnerability to external shocks.
① Promote domestic production by providing production incentives and bolstering support for recycling and resource recovery.
② Increase strategic reserves by broadening the range and volume of stockpiled items and upgrading stockpiling capabilities.
③ Secure overseas production capacity by scaling up overseas supply chain investment and leveraging patient capital (long-term investment capital) more effectively.
④ Diversify import sources by expanding support for alternative sourcing of goods heavily dependent on specific countries, including those in the Middle East.
- Promote the wider adoption of renewable energy and reinforce the foundation for carbon-neutral energy security; the Korean Green Transformation (K-GX) Strategy will be announced jointly by relevant ministries in Q3 2026 to support the implementation of the three mega projects, reduce dependence on fossil fuels, and develop key green industries.
- Deepen strategic economic cooperation in response to the Middle East conflict; pursue the opening of a Korea-U.S. shipbuilding cooperation center in Washington, D.C., in Q3 2026; and establish a Korea-India economic cooperation task force.
II. Reviving Potential Growth
i. Fostering World-Leading Growth Engines
- Position Korea as a global leader in semiconductors, AI data centers, and physical AI through the three mega projects.
① Cement Korea’s global leadership in semiconductors by increasing production capacity and supporting next-generation semiconductor technologies; expedite the completion of fabs in the Seoul metropolitan area to double memory production capacity within five years, and invest a total of KRW 800 trillion in building fabs in the southwestern region.
② Maintain an unassailable technological lead by building AI data centers and revitalizing the data economy; invest KRW 550 trillion in building an 8.4 GW AI data center and begin phased operations from 2029.
③ Forster globally competitive strategic industries by advancing physical AI and accelerating AX; strengthen support for the demonstration and commercialization of physical AI across seven priority sectors: factories, robotics, autonomous vehicles, shipbuilding, home appliances, drones, and semiconductors.
- Support the development of new hyper-innovation growth drivers, including the Hyper-Innovation Economy flagship project, emerging industries, and blockchain.
① Step up support for key future-industry components, including sensors, actuators, and secondary batteries, by designating them as new Hyper-Innovation Economy flagship projects.
② Drive Korea’s emergence as a global top-five pharmaceutical and biotechnology power and a top-four defense industry power, while making strategic investments in future frontier industries, including aerospace and AI agents.
③ Advance financial infrastructure innovation through the blockchain-based tokenization of government bonds.
- Build a stronger foundation for future growth through R&D innovation and expanded financing.
① Pursue comprehensive R&D reform by upgrading the R&D governance framework and developing nationally leading government-funded research institutes.
② Scale up public and private financing for cutting-edge technologies through the sovereign wealth fund, the National Growth Fund, and other financing vehicles; establish a strategic investment account within the Korea Investment Corporation (KIC) for domestic and overseas strategic investments, with a view to broadening and restructuring its sovereign wealth fund functions by 2026.
ii. Advancing Region-Led Growth
- Create new regional growth drivers by promoting the “Five Growth Hubs and Three Special Zones” initiative and facilitating regional entrepreneurship.
① Identify regional growth engines in Q3 2026 based on regional industrial conditions, corporate investment plans, future growth potential, and alignment with national industrial policy.
② Launch a package of support measures for the four startup cities and designate six additional startup cities in the second half of 2026.
③ Announce the second-phase public institution relocation plan to redistribute national functions concentrated in the Seoul metropolitan area in the second half of 2026, and begin relocations in 2027.
- Improve regional vitality by enhancing living, mobility, and educational conditions across local communities.
① Expand the rural basic income program to cover seven additional counties, bringing the total to 17 counties in August 2026.
② Upgrade housing, cultural, educational, and healthcare infrastructure to ensure that residents in regional areas can enjoy a high quality of life.
- Lay the foundation for regional growth through preferential fiscal, tax, and public procurement policies for local areas.
① Substantially increase the number of regionally prioritized programs in 2027 from seven in 2026.
② Introduce a three-part package of regional tax incentives for businesses, workers, and other eligible groups.
III. Addressing Structural Challenges
i. Address Economic Polarization
- Develop and implement a basic plan for employment stability amid industrial transformation to proactively respond to the labor market impact of AI.
- Support young people in achieving economic and social mobility through solution-oriented measures addressing employment, asset building, housing, marriage, and childbirth; prepare and announce the youth employment revitalization plan in Q3 2026; and review the youth policy governance framework to support the systematic formulation and implementation of youth policies.
① Create more than 200,000 quality jobs by 2030 by boosting private-sector employment and developing youth-oriented public sector jobs.
② Launch a youth ISA in the first half of 2027, offering a 10 percent tax deduction on contributions and tax exemptions on interest and dividend income.
③ Supply more than 400,000 public rental housing units for young people by 2030.
- Support the growth and recovery of SMEs, self-employed business owners, and vulnerable groups through tailored policy measures.
① Build a nationwide startup ecosystem where anyone can turn innovative ideas into a business.
② Promote investment and growth among SMEs through growth-oriented support and mutually beneficial partnerships; introduce a tax benefit phase-out period to ease the reduction in tax incentives as SMEs grow into mid-sized enterprises.
③ Strengthen the competitiveness of small business while supporting their recovery from crises; provide a package of support for technology development and commercialization to help promising small business owners bring their ideas to market.
④ Bolster the social safety net by enhancing work incentives and closing gaps in social protection; announce measures to refine the earned income tax credit (EITC) eligibility criteria, including easing the income eligibility requirements, in July 2026.
- Reduce labor market disparities by protecting workers’ rights and improving employment and working-hour systems; review measures to facilitate the flexible use of working hours and support the wider adoption of diverse working arrangements.
ii. Pushing ahead with Structural Reform
- Drive a shift toward more productive finance through capital market reform and the decoupling of real estate and finance.
① Allow foreign investors using omnibus accounts to invest in ETFs.
② Establish and launch an offshore Korean won settlement system in January 2027 while substantially relaxing FX regulations on capital transactions.
③ Provide incentives for the use of the Korean won in current account transactions and facilitate Korean won-denominated trade finance using currency swap funds.
- Institutionalize public sector, tax, and fiscal reforms through more strategic sovereign wealth management and functional reforms of public institutions; undertake strategic restructuring of key public institutions, consolidate overlapping institutions with similar functions, and streamline subsidiaries and overseas branches.
- Address demographic decline and modernize the talent development system.
① Announce an integrated foreign workforce support roadmap covering the entire foreign worker employment process in the second half of 2026.
② Attract 2,000 highly skilled foreign professionals by 2030 by expanding eligibility for the Top-Tier Visa.
- Strengthen a comprehensive, sustainable, and muti-tier retirement income security system; introduce a progressive benefit structure for the Basic Pension and undertake a comprehensive reform of the retirement pension system in the second half of 2026.
- Pursue bold regulatory reform across criminal penalties, industry- and technology-specific regulations, and regulatory sandboxes; modernize outdated regulations and align them with global standards.
- Create a safer society by closing safety gaps and strengthening accountability and enforcement in safety management; raise fire safety standards to the level of those in advanced economies.
Please refer to the attached files.
