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IMF Lifts South Korea's 2026 Growth Forecast on Chip Demand, China Outlook Upgraded

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IMF Lifts South Korea's 2026 Growth Forecast on Chip Demand, China Outlook Upgraded

The International Monetary Fund raised its 2026 growth forecasts for South Korea and China, citing strong external demand for semiconductors and rebalancing in the Chinese economy, even as the fallout from the Middle East war continues to weigh on the region.

In its July World Economic Outlook update published late Wednesday, the IMF said South Korea's economy is expected to grow 2.6% in 2026, up 0.7 percentage points from the April forecast, with growth "buoyed by strong external demand for semiconductors, which dominates the negative impact of the war."

Samsung Electronics (KRX:005930) and SK Hynix (KRX:000660) dominate the local semiconductor sector in South Korea.

The 2027 growth estimate for the country was raised 0.4 percentage points to 2.5%. The IMF noted that South Korea's first-quarter growth came in at 7.5%, more than four times the 1.8% pace projected in April.

The fund said the first-quarter growth was powered by a semiconductor and AI-hardware export boom, despite the country's "heavy reliance on imported energy from the Middle East."

Meanwhile, China's 2026 growth forecast was raised to 4.6%, up 0.2 percentage point from April, with the IMF citing efforts toward domestic rebalancing. However, it noted that higher global oil prices, protracted uncertainty and structural headwinds are expected to weigh on activity in China.

Inflation in China is expected "to rise from low levels," the IMF said.

The 2027 GDP growth estimate was raised 0.1 percentage point to 4.1%. China's economy expanded 8.1% in the first quarter, beating expectations on front-loaded infrastructure investment and a surge in high-tech manufacturing and exports, even as domestic consumption stayed soft, the IMF said.

Elsewhere, India's 2026 growth forecast was cut to 6.4% from the April outlook of 6.5%, even as the IMF said the country remains among the fastest-growing major economies, supported by strong momentum in private consumption and services activity.

The 2027 estimate was raised 0.2 percentage points to 6.7%.

Japan's 2026 forecast was trimmed 0.1 percentage point to 0.6%, with fiscal support measures partly cushioning the impact of higher energy prices. The 2027 forecast was raised 0.1 percentage point to 0.7% as the energy shock fades.

Japan's first-quarter growth came in at 1.8%, beating expectations on net trade, exports and a pickup in private consumption.

The IMF expects core inflation in Japan to return to target gradually by the end of 2027.

The fund's 2026 growth forecast for the five ASEAN countries -- Indonesia, Malaysia, the Philippines, Singapore and Thailand -- was unchanged at 4.1%, while the 2027 estimate was cut 0.1 percentage point to 4.3%.

Within the group, Malaysia's 2026 forecast held steady at 4.7% on data-center activity and the upturn in the global technology cycle, while Thailand's was raised 0.4 percentage point to 1.9% on emergency fiscal measures and technology-related exports and investment.

The IMF identified Taiwan, South Korea, Thailand and Malaysia as the top four net exporters of AI-related hardware, noting their average seasonally adjusted annualized suprise growth of 4.4 percentage points, against the 0.3 percentage point drop for the rest of the world.

Overall, the IMF said, "Risks to the outlook are more balanced than in April but still tilted to the downside."

"The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions."

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