South Korea's Q1 GDP Growth Roars Past Market on AI Chip Demand
By Reuters | 22 Apr, 2026

South Korea's economy grew at the fastest pace in nearly six years as its chipmakers fly high on insatiable global AI demand.

South Korea's economy delivered its fastest growth in nearly six years last quarter, smashing forecasts as booming chip exports rode a global surge in AI investment, though rising risks from the Middle East war threaten to cut into the record earnings.

Gross domestic product expanded 1.7% in the January-March quarter from the prior three months, the Bank of Korea said, blowing through the median Reuters poll estimate of 1.0% by a wide margin.

The higher growth was powered by a 5.1% jump in exports, led by shipments of "IT components including semiconductors" used in artificial intelligence infrastructure, the BOK said.

The expansion marked the strongest quarterly pace since the third quarter of 2020 when Asia's fourth-largest economy was rebounding from the COVID-19 pandemic shock.

The robust performance could provide a signal for policy tightening at the BOK, said Kim Myoung-sil, an analyst at iM Securities in Seoul.

At the April 10 policy review, the BOK kept its benchmark interest rate steady and warned of a highly uncertain path ahead as a broadening conflict in the Middle East threatened to derail growth and worsen inflation.

The BOK's policy tone at its April meeting is in stark contrast to the first-quarter GDP, which "significantly exceeded consensus," Kim said.

"The bond market is now pricing in a reduced likelihood of a growth slowdown," he said.

On Thursday, the three-year government bond yield rose 8.8 basis points to 3.453%, while the won remained flat at 1,480.7 per dollar as of 0503 GMT.

The BOK is likely to revise its inflation outlook next month from the current 2.2% for this year, Kim added.

As the world's fourth-largest oil importer, South Korea is heavily exposed to the Middle East. Any prolonged disruption in the Strait of Hormuz would choke refining and petrochemical operations and quickly spill over into higher costs of living at home.

The conflict has already pushed consumer prices back above the BOK's target to 2.2% in March, forcing the government to intervene by imposing fuel price caps for the first time in nearly three decades.

SHORT-LIVED RELIEF?

In the first quarter, however, red-hot demand for Korean chips linked to the AI boom was enough to underpin the broader economy.

On Thursday, SK Hynix posted a more than five-fold jump in first-quarter operating profit to a record high, driven by demand from global tech giants to build AI data centres.

That followed rival Samsung Electronics' eightfold jump in quarterly profit earlier this month.

In the first quarter, private consumption rose 0.5% after showing tentative signs of recovery in January and February as household confidence improved, while government expenditure grew just 0.1%.

Facility investment gained 4.8% after shrinking 1.7% in the last quarter of 2025.

From a year earlier, South Korea's economy grew 3.6%, compared with a 1.6% expansion in the fourth quarter and beating a median estimate for 2.7% growth.

The outlook has darkened, however, economists say, as the energy shock and supply disruptions from the Iran war sap business and consumer confidence.

"Going forward, we see downside risks in second quarter GDP due to higher oil price causing damage to consumption and corporate capex," said Stephen Lee, an economist at Meritz Securities.

(Reporting by Cynthia Kim; Additional reporting by Youn Ah MoonEditing by Ed Davies and Shri Navaratnam)