New Year’s Prospects for the Korean Economy

This article by the president of KIET is an annual New Year's tradition, dedicated to i-KIET's subscribers, readers, and supporters. The Year of the Fire Horse (丙午) has dawned upon us. I sincerely thank you for your continued interest in and support for i-KIET Issues & Analysis, and I wish you and your loved ones health and happiness in the year ahead. At present, the South Korean economy finds itself at a crossroads of recovery and uncertainty. Although inflation is easing, the monetary policy trajectories of major global economies remain difficult to project. Meanwhile, rising geopolitical tensions and protectionism are increasing volatility across global supply chains and destabilizing the international trade order. These external factors pose challenges for the Korean economy; however, the ongoing shift toward regionalized, ally-centered supply chains also presents new opportunities that Korea can strategically leverage. The Korean economy is expected to grow by 1.9 percent in 2026, with private consumption continuing its recovery as interest rates and prices stabilize. Significant advances in sectors such as artificial intelligence (AI), data centers, semiconductors, and electric vehicles will continue to drive a qualitative transformation in capital investment, while rising employment and service consumption facilitate business recovery. Nevertheless, slowing global trade, trade related risks vis-à-vis the United States, and adjustments in the construction and real estate sectors will ultimately constrain the pace of economic recovery. For the Korean economy, 2026 will be a pivotal year. The winds of change are blowing, and Korea must harness them to establish a new growth paradigm. To turn the many challenges facing the country into opportunities, Korea must first and foremost strengthen its supply chains and reinforce its economic security in response to changes in the global trade environment. Second, it must redefine its industrial competitiveness by achieving productivity-enhancing innovation with the help of digital and AI technologies. Third, it must continue to advance its climate mitigation and energy transition efforts, as carbon neutrality represents a promising engine of future industrial growth. Fourth, it must secure sustainable growth potential by effectively addressing demographic challenges and reforming the structure of its labor market and its public finances. In this new year, I sincerely hope that Korea’s industries and companies will claim an even greater presence on the global stage, and that the nation as a whole will establish a new foundation of growth for future generations. Namhoon Kwon President, Korea Institute for Industrial Economics and Trade January 1st, 2026