South Korea’s economy grew faster than expected in the second quarter, supported by booming semiconductor exports and a rebound in domestic demand despite higher energy costs from the conflict in the Middle East, according to data released by the Bank of Korea on July 23, 2026.
Gross domestic product expanded 0.6% from the previous quarter, exceeding the central bank’s 0.2% forecast issued in May. The economy had already surprised on the upside with 1.8% growth in the first quarter, putting South Korea on track for annual growth above 3%.
Bank of Korea officials said full-year growth would exceed 3% even if the economy contracts slightly in the second half, making 2026 the strongest year of economic expansion since 2021, when the country posted 4.7% growth.
Compared with a year earlier, GDP increased 3.7% in the second quarter, following 3.8% growth in the first quarter.
The conflict in the Middle East pushed oil prices higher during the quarter, increasing pressure on the economy. But soaring semiconductor exports, supported by elevated chip prices, more than offset the drag from higher energy costs.
Lee Dong-won, director of economic statistics at the Bank of Korea, said government efforts to stabilize fuel supplies, expand strategic petroleum swaps and diversify energy imports helped limit the economic impact of the conflict.
He added that growth is expected to moderate in the second half as semiconductor exports normalize, though the economy is unlikely to slip into contraction.
Domestic demand also strengthened during the quarter.
Private consumption rose 0.4%, driven by increased spending on both goods and services, while government consumption edged up 0.2%, reflecting higher public health-insurance expenditures.
Construction investment declined 0.2% because of weaker civil-engineering activity. Equipment investment increased 0.2%, supported by purchases of semiconductor manufacturing equipment.
Investment in intellectual property—including research and development and software—jumped 3.3%, marking the strongest quarterly gain since early 2012.
Exports rose 1.4%, led by semiconductors and machinery, while imports increased 0.8% on stronger purchases of automobiles and industrial equipment.
Domestic demand contributed 0.3 percentage point to quarterly GDP growth, while net exports added another 0.3 percentage point, indicating balanced support from both household spending and overseas trade.
Private consumption alone accounted for 0.2 percentage point of quarterly growth.
Lee said economists had expected exports to drive nearly all of the quarter’s expansion, but domestic demand also made a meaningful contribution for a second consecutive quarter.
Consumer spending was further supported by temporary factors.
Lee Hyun-young, head of the Bank of Korea’s expenditure and national income team, said a large rebate campaign by Samsung Electronics generated at least about $2.2 billion in home-appliance purchases. Rising equity prices also boosted consumer confidence, lifting spending at department stores and increasing demand for apparel and luxury goods.
Government assistance to offset higher energy costs, along with policies promoting domestic tourism, also supported spending on restaurants, hotels and travel services, she said.
Manufacturing output rose 1.2%, driven by computers, electronics and optical products.
Utilities fell 1.3%, while construction output declined 1.9%. Agriculture, forestry and fisheries contracted 7.1%, while the services sector expanded 1.1%, led by wholesale and retail trade, hospitality, financial services and information technology.
Real gross domestic income, a measure of purchasing power, rose 15.6% from a year earlier after increasing 13.2% in the first quarter, marking its fastest annual growth since the first quarter of 1988.
The surge reflected improved terms of trade as rising semiconductor prices boosted export earnings faster than import costs. Higher real income could strengthen corporate investment and household purchasing power, providing additional support for domestic demand.
Bank of Korea Gov. Shin Hyun-song has said second-quarter real gross domestic income will be among the key indicators policymakers consider when deciding whether to raise interest rates at next month’s monetary policy meeting.
