Economic growth rebounds strongly in Q1 2026

Korea’s economy starts 2026 on a solid footing: Korea's GDP expanded 1.7% in seasonally adjusted quarter-on-quarter terms in Q1, following a 0.2% contraction in the prior quarter. Q1's reading was the strongest since Q3 2020 and almost double market expectations. In annual terms, GDP expanded 3.6% in Q1, following a 1.6% increase in the prior quarter.

Surging AI demand fuels GDP growth: Relative to the prior period's data, figures in Q1 improved for private consumption (+0.5% on a seasonally adjusted quarter-on-quarter basis vs +0.3% in Q4), fixed investment (+2.9% vs -2.2% in Q4), exports of goods and services (+5.1% vs -1.7% in Q4) and imports of goods and services (+3.0% vs -1.5% in Q4). In contrast, the reading for government spending softened in Q1 (+0.1% vs +1.3% in Q4). Strong GDP growth in Q1 was mainly driven by exports, which grew at the fastest pace since the 2020 pandemic recovery, supported by surging AI demand that boosted semiconductor and memory chip exports. Strong demand from the tech industry also likely underpinned a rebound in fixed investment. In contrast, private consumption recorded a modest increase, highlighting a two-speed growth dynamic.

GDP growth to ease in Q2: Korea’s economy—which has seen choppy momentum over recent quarters—is expected to lose traction in Q2 after Q1’s strong performance. Consumer confidence fell to a 10-month low in March, as the war in Iran clouded the outlook for economic growth and prices. The effective closure of the Strait of Hormuz has driven a sharp rise in global energy prices, lifting import costs in an economy heavily dependent on overseas fuel and putting depreciatory pressure on the won. A weaker currency, in turn, has fueled concerns that inflation may accelerate in the months ahead. Looking at potential risks, given the lopsided GDP growth dynamic in the country, a correction in the AI sector is a downside risk.

Panelist insight: Commenting on the outlook, Nomura analysts stated: “We revise up or 2026 GDP growth forecast […] reflecting strong Q1 GDP growth. That said, the path ahead remains uncertain and export-led K-shaped recovery is still intact. […]. Indeed, in addition to higher oil prices, which can weigh on consumption, we are seeing headwinds (beyond the oil shock) to domestic consumption, despite the strong stock market performance. For example, although housing prices are stabilizing, Jeonse prices [lump-sum deposits] are rising, which can increase housing costs and, in turn, limit the pace of the consumption recovery.”

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