The government presented this year’s economic growth forecast at 2.0%, signaling confidence in a recovery. It judges that, on top of a rebound in domestic demand, proactive fiscal execution and policy effects from the newly created National Growth Fund, among others, will make a rebound in the growth rate possible.

The government will also induce large-scale investment by introducing a Domestic Production Promotion Tax System and establishing a Korean-style sovereign wealth fund to raise the potential growth rate. Although it says it will seek an economic rebound and higher potential growth through active fiscal policy and policy finance, critics note that, with the focus trained on specific industries such as semiconductors and on revitalizing capital markets via vehicles like the National Growth Fund, there is no clear solution for alleviating polarization.

On the 9th, the Ministry of Finance and Economy, through the ‘2026 Economic Growth Strategy,’ projected this year’s Korean economic growth at 2.0%. That is 0.2 percentage points above the 1.8% forecasts presented by the Bank of Korea, the Korea Development Institute (KDI), and the International Monetary Fund (IMF).

The government had set this year’s growth forecast at 1.8% in last August’s ‘New Government Economic Growth Strategy,’ but said it revised it upward on expectations that growth will broaden, led by domestic demand. First Vice Minister Lee Hyung-Il of the ministry said, “Private consumption will rise to the high 1% range, and construction investment will also return to growth,” adding, “Exports will improve on the back of strong semiconductors.”

The government expects private consumption to grow 1.7% year-on-year as corporate earnings and employment recover with the economic rebound, boosting households’ real purchasing power. It also sees construction investment, another pillar of domestic demand, shifting from a 9.5% decline last year to a 2.4% increase this year. It judged that construction of semiconductor plants and an expansion of the social overhead capital (SOC) budget will support the construction cycle, easing the slump.

Facility investment is also projected to grow 2.1%, helped by the recovery in the semiconductor cycle. The government stated, “Amid continued demand for migration to advanced processes on the back of favorable semiconductor conditions, major companies’ large-scale investment plans will drive facility investment.”

Exports are expected to continue rising. After increasing 3.8% last year, exports are projected to grow 4.2% this year, widening the gain. Although global trade will slow due to U.S. tariffs, the government expects the export uptrend to persist thanks to strength in semiconductors stemming from expanded investment in artificial intelligence (AI).

The government’s more upbeat growth forecast relative to other institutions also reflects policy resolve, including proactive fiscal policy and record-scale investment by public institutions. Government spending this year is up 8.1% from a year earlier, and investment by public institutions has also increased by 4 trillion won to 70 trillion won. In particular, the government expects the National Growth Fund, designed to support advanced industries such as AI and semiconductors, to catalyze large-scale investment.

The strategy also includes numerous long-term measures to raise potential growth. It is based on the assessment that, amid population decline, weak investment, and stagnant productivity, potential growth could fall to around 1% in the 2030s and into the 0% range in the 2040s.

First, the government will establish a 20 trillion won ‘Korean-style sovereign wealth fund’ to enable long-term investment in national strategic sectors. It will also introduce a ‘Domestic Production Promotion Tax System’ to spur companies’ domestic investment, and create a new ‘Strategic Export Financing Fund’ to support large projectssuch as defense and nuclear powerwhere international bidding competition is fierce. To invigorate capital markets, it will introduce a ‘Youth Individual Savings Account (ISA)’ with greatly expanded tax benefits and a ‘National Growth ISA.’ It will also prepare measures to differentiate tax support by region to induce regional investment.

In this package, the government underscored growth to the point of mentioning the word ‘growth’ 101 times, vowing to make this the ‘first year of a great leap forward for the Korean economy.’ Upon taking office, the Lee Jae Myung administration also changed the conventional title ‘Economic Policy Directions’ to ‘Economic Growth Strategy.’

However, some argue that it focuses only on supporting specific industries such as semiconductors and places emphasis solely on capital-market revitalization through measures like the National Growth Fund and ISAs. The government itself diagnoses that, amid large-conglomerate and information technology (IT)-centered growth, unfair transactions between large and small firms and a dual structure in the labor market are widening income and asset gaps, yet its measures largely stop at supplementing existing policies such as invigorating retirement pensions and improving the Earned Income Tax Credit (EITC).

Jung Se-Eun, a professor at Chungnam National University, said, “Job polarization between large and small firms and between regular and non-regular workers is severe, yet there are no concret alternatives to level the playing field.” She added, “While it reflects consideration for balanced regional growth, tax-cut-focused policies that reduce local tax revenues could instead weaken local governments’ revenue bases.”

In a commentary, People’s Solidarity for Participatory Democracy (PSPD) stated, “The crux of this strategy is not a grand shift in the mode of growth and economic order, but rather to boost growth through increased investment and deregulation while maintaining the existing growth model centered on conglomerates, finance, and national strategic industries.” It continued, “Remedies limited to tidying up existing welfare systems cannot be seen as sufficient answers to the intensifying polarization and inequality summarized as ‘K-shaped growth.’”