Korea's dependence on chip exports raises external shock exposure, OECD warns

Korea's growing dependence on semiconductor exports may make the country more vulnerable to external shocks and cyclical volatility, despite serving as a major "growth driver," the Organisation for Economic Cooperation and Development (OECD) said Thursday.

The Paris-based organization made the assessment in a report titled "OECD Economic Surveys: Korea 2026," which came around a month after it raised Korea's economic growth outlook for this year to 2.6 percent from 1.7 percent three months earlier, citing the AI boom.

"Semiconductor exports have been an important growth driver, with the growth contribution of exports and investments accelerating in early 2026," the report said.

Government data released the previous day showed Korea's monthly exports hit a fresh high by surpassing the $100 billion mark for the first time in June, amid a record-breaking chip performance.

Exports of semiconductors nearly tripled to reach $44.82 billion, with monthly exports surpassing $40 billion for the first time on the back of surging demand for memory chips.

The OECD, however, said such dependence also "generates volatility in output and tax revenues and strategic vulnerabilities."

"The increasing dependence on semiconductor exports boosts growth and tax revenues but may also increase exposure to external shocks and cyclical volatility," it added.

Amid such challenges, the OECD stressed the need to "use fiscal policy to support domestic demand but consolidate in the medium term," in order to improve fiscal health amid rapidly rising spending pressures from challenges such as an aging population.

"Due to extremely low birth rates and increasing life expectancy, the age structure of the population has inverted, and the labor force is set to contract in a few years after decades of expansion," the report said.

Despite recent signs of a rebound, with the number of newborns on an upward trend since July 2024, Korea's total fertility rate, the average number of children a woman is expected to have in her lifetime, was just 0.93 in April.

The rate remains well below the 2.1 births per woman needed to maintain a stable population without immigration.

With the demographic challenge set to weigh on Korea's fiscal soundness, the OECD advised Korea to create a "broad political consensus on a strengthened fiscal framework, including medium-term fiscal objectives and mandatory spending restructuring consistent with long-term sustainability."

The OECD also advised Korea to raise the pension eligibility age further than the current 63 by 2035.

The OECD additionally called for efforts to address the labor market dualism "by relaxing employment protection for regular workers, while expanding social insurance enrolment."

Touching on the property market, the OECD suggested that the country should pursue comprehensive tax reform, especially in this area.

"Korea's property tax revenue structure relies more heavily on transaction taxes and less on the more efficient recurrent taxes than the OECD average," the report said.

"A revenue-neutral shift, once current housing market tensions have abated, towards recurrent taxes and tenure neutrality would support residential mobility, improve labor market efficiency and mitigate housing market frictions," it added.

The OECD noted that more than one-third of wage earners in the country do not pay any personal income tax, noting that a reform of the exemption policy could lead to additional tax revenue, as the country needs to secure new sources of income to address pending challenges, such as the aging population.

The organization said Korea should also brace for continued volatility in energy prices, although inflationary pressures from domestic demand remain "subdued."

The OECD added that Korea should "look through inflationary pressures from the energy price shock, while standing ready to tighten to keep long-term inflation expectations anchored."

Yonhap