A gas station in Seoul on Tuesday. (Yonhap)
A gas station in Seoul on Tuesday. (Yonhap)

An Asia-based economic surveillance organization said Monday that South Korea's economy is expected to expand 1.9 percent this year, supported by solid semiconductor demand and government stimulus spending.

The latest projection from the ASEAN+3 Macroeconomic Research Office is unchanged from its previous assessment in December, according to the Ministry of Finance and Economy.

In 2026, AMRO expects South Korea's real gross domestic product to rebound from 1 percent growth in 2025, driven by resilient semiconductor demand and the government's supplementary budget measures, the ministry said.

Yet, the organization raised its inflation forecast for this year to 2.3 percent from 1.9 percent, citing recent increases in global energy prices.

Global oil prices have surged as the Strait of Hormuz has effectively been closed following US-Israeli strikes on Iran in late February, disrupting global oil supplies. South Korea imports nearly 98 percent of its crude oil supplies, mostly from the Middle East.

AMRO cautioned that the external sector faces mounting challenges, with downside risks and elevated uncertainty ahead, the ministry said.

While investment demand driven by advances in artificial intelligence could support growth, a potential slowdown in AI development and the possible resumption of US tariff measures may weigh on the outlook.

It also identified rising global energy prices and prolonged disruptions in the regional energy supply as additional risks to both growth and inflation.

Looking ahead, AMRO emphasized the need for flexible policy responses amid heightened uncertainty.

It said Seoul authorities should adopt a data-driven and adaptive approach, coordinating fiscal and monetary policies to better respond to shocks and sustain growth momentum.

The Singapore-based organization was established in 2011 to promote macroeconomic and financial stability in the Asian region, which covers the 10-member Association of Southeast Asian Nations and its three Northeast Asian partners -- South Korea, China and Japan. (Yonhap)