• □ Korea’s crude oil import price (Dubai) is assumed to stand at $91 per barrel in 2026, up from $69 in 2025 due to the war in the Middle East, before declining to $82 in 2027.

• □ The Korean won’s real effective exchange rate is assumed to remain broadly stable at its recent level.

• □ The Korean economy is projected to grow by around 2.5% in 2026, supported by robust semiconductor exports and a recovery in domestic demand, with growth expected at about 1.7% in 2027.

•   · Growth is expected to run above potential in 2026–27, leaving the economy in an expansionary phase.
•   · Private consumption is projected to recover, rising by around 2.2% in 2026 and 1.5% in 2027, supported by improving income conditions and government support measures despite the inflationary impact of the war in the Middle East.
•   · Equipment investment is expected to expand by around 3.3% in 2026 and 2.4% in 2027, supported by robust investment demand from the semiconductor upturn despite weakness in non-semiconductor sectors.
•   · Construction investment is projected to increase only marginally in 2026, by 0.1%, as higher construction costs stemming from the war in the Middle East delay its recovery, before growth rises to around 1.1% in 2027.
•   · Exports are expected to increase by around 4.6% in 2026, supported by the semiconductor upcycle, and to maintain solid growth of around 2.2% in 2027.
•   · The current account is projected to post a particularly large surplus, driven by a sharp increase in semiconductor exports.

• □ Headline inflation is forecast to rise to around 2.7% in 2026, as higher international oil prices coincide with the recovery in economic activity, before moderating to about 2.2% in 2027 as oil prices decline.

• □ Despite demographic headwinds, employment is expected to continue improving gradually, with the number of employed persons increasing by 170,000 in both 2026 and 2027 as domestic demand recovers.

• □ Growth could strengthen further if semiconductor supply capacity expands rapidly.

•   ·Given the surge in semiconductor demand, an increase in semiconductor supply capacity could lift real GDP growth, which is measured in volume terms.

• □ Growth could weaken if the war in the Middle East escalates or becomes prolonged, as disruptions to commodity supply and higher production costs weigh on activity.

•   · Considerable uncertainty surrounds the course of the war in the Middle East, and a prolonged blockade of the Strait of Hormuz could push up production costs across the broader economy.

1. Monetary policy

• □ Monetary policy should respond flexibly to the risk that inflation expectations could become destabilized amid improving economic activity and a sharp rise in international oil prices.

•   · Demand-side inflationary pressures are building as private consumption improves, while higher international oil prices have added substantially to supply-side pressures.
•   · Monetary policy therefore needs to guard against destabilized inflation expectations, while taking domestic and external uncertainties into account.

2. Fiscal policy

• □ Fiscal policy should focus spending on raising potential growth and supporting income-vulnerable groups, while continuing efforts to improve spending efficiency.

•   · Under the National Fiscal Management Plan for 2025–29, basic pension spending and local education finance grants are expected to exceed 100 trillion won next year, underscoring the need to actively pursue spending-efficiency reforms, including for mandatory expenditures that require legislative amendments.
•   · In particular, basic pension support should be targeted more closely to vulnerable older persons, while local education finance grants should be restructured to reflect the school-age population.