Moody’s Corp. has sharply raised its forecast for South Korea’s economic growth this year to 3.5 percent, citing a strong semiconductor cycle that it expects to continue through at least mid-2027.

The rating agency forecast gross domestic product (GDP) growth of 3.5 percent this year and 2.7 percent next year in a report following its periodic review of ratings of Korea.

The 2026 forecast is 0.3 percentage point above the 3.2 percent average projection from eight major investment banks (IBs), according to the Korea Center for International Finance.

Moody’s had forecast 1.8 percent growth in February and raised the projection to 2.5 percent in May.

The agency attributed the latest upgrade to the semiconductor supercycle and strong exports. Korea’s goods exports rose 51 percent in January-July from a year earlier, driven by robust semiconductor exports.

Moody’s expects strong chip demand to continue, with few viable alternatives to Korea’s leading memory suppliers.

It also highlighted government projects targeting semiconductors, artificial intelligence (AI) data centers and physical AI, saying they could create new growth engines, boost productivity and raise potential growth.

The agency expects Korea’s fiscal deficit to reach 3.8 percent of GDP this year, 0.1 percentage point better than the government’s initial target, amid stronger growth and continued revenue surpluses.

It warned, however, that population aging, defense and security spending and investment to maintain export competitiveness could increase fiscal pressure without policy reforms.

Moody’s previously assigned Korea an Aa2 sovereign credit rating, citing its policy effectiveness and economic strength, while flagging rising government debt and aging-related fiscal pressures as long-term challenges.

The latest report was not a rating action and does not signal whether Moody’s will issue a new sovereign rating for Korea in the near future.