South Korean Economy Surges to Double-Digit Growth in Q1, Fueled by AI Semiconductors

South Korea's economy achieved double-digit growth in the first quarter for the first time in 50 years. The Gross Domestic Product (GDP) increased by 10.5% from the previous quarter, and Gross National Income (GNI) also rose significantly by 9.2%. This growth is thanks to increased global investment in computer components (semiconductors) for AI, leading to higher prices for memory semiconductors and consequently improving trade conditions with other countries.

In the first quarter of 2026, real GDP grew by 1.8% compared to the previous quarter. Nominal GDP increased by 17.1% year-on-year. Real GNI rose by 9.2% quarter-on-quarter, exceeding the GDP growth rate of 1.8% by more than five times. This was driven by improved terms of trade and an increase in net primary income from abroad. According to the Bank of Korea, real net primary income from abroad increased from 8.2 trillion won to 11.6 trillion won in Q1 2026.

The surge in prices for memory semiconductors, including HBM, due to the global AI infrastructure investment boom, led to a sharp 48.3% year-on-year increase in South Korean exports in March 2026, the highest growth rate in approximately 40 years. The Information and Communications Technology (ICT) manufacturing sector grew by 15.4% in the first quarter. In its 2025 report, the IMF analyzed that the global AI boom could significantly boost South Korean semiconductor exports in the medium term. The expansion of AI server investment has led to a surge in demand for memory semiconductors like High Bandwidth Memory (HBM). These structural factors are driving income growth in the South Korean economy.

The improvement in the 'terms of trade,' where export prices rose faster than import prices, is the key mechanism behind the rise in GNI. In the first quarter, the export deflator jumped by 23.5% year-on-year, while the domestic demand deflator increased by only 2.1%. This aligns with the 'improvement in export corporate profitability' explained by the Bank of Korea.

The increase in income in won terms is not directly translating into a rise in per capita GNI in dollar terms. In 2025, per capita GNI increased by 4.6% to 52.57 million won in won terms, but only rose by 0.3% to $36,963 in dollar terms. This is due to the high exchange rate (weak won), hovering around 1,500 won per dollar. Kim Hwa-yong, head of the National Accounts Department at the Bank of Korea, stated that if the nominal growth trend continues in Q1 2026, per capita GNI could approach $40,000 this year. He added that it would depend on corporate performance and the won-dollar exchange rate. If the average exchange rate of 1,467 won per dollar in the first quarter continues throughout the year, per capita GNI would decrease to $39,780, and if the rate rises to 1,500 won, it could fall below $39,000.

The IMF analyzed that South Korea's merchandise exports have been concentrated in specific industries such as electronics/electrical, chemicals/metals, machinery, and automobiles. The OECD also pointed out that the South Korean economy is highly dependent on merchandise exports and has concentrated trade partners and items. While this rapidly boosts income during booms, the high volatility in export prices for key items means that the pace of decline can also be swift if price cycles turn or geopolitical risks emerge.

In an April 2026 report, Reuters noted that South Korea's import prices rose in March due to oil price instability in the Middle East. Given the structure of the South Korean economy's high dependence on energy imports, a surge in oil prices could have served as a factor to worsen terms of trade again and destabilize the GNI growth trend.