South Korea's exports extended their rapid growth in September, with global artificial intelligence demand continuing to drive semiconductor shipments, reinforcing market expectations that this trade-dependent economy can withstand higher interest rates.

Data released Thursday by the Korea Customs Service showed that after adjusting for working day differences, exports rose 104.9% year-on-year. Export value reached $120.9 billion, setting an all-time record, following shipments in the first 20 days of the month that had already climbed to a record high for the same period. The customs agency said that in the first nine months of 2026, South Korea's exports also reached a record $814.5 billion, surpassing $800 billion for the first time. Unadjusted exports grew 83.5%, compared with a revised 68.7% gain in August. Imports rose 26%, producing a trade surplus of nearly $50 billion.

Semiconductors remained the engine of the boom, with chip exports surging 263% year-on-year to a record $60.3 billion. Computer shipments soared 435%, while petroleum products rose 72%. Automobile exports fell 5%. Despite fewer working days in September this year due to the Korean Chuseok holiday from September 24 to 26, exports still achieved strong growth. Last year's Chuseok holiday fell in October, creating a calendar effect that may distort year-on-year comparisons.

Jiuk Choi, Asia-Pacific macro strategist at State Street, said: "There is no doubt that both September exports and the trade balance came in well above market consensus and our previous estimates." He expects export growth to slow from the fourth quarter due to base effects. He added that expanding global AI-related investment and rising prices for high-bandwidth memory chips will still support exports.

The data show that South Korea's trade momentum remained strong through the end of the third quarter, supporting the Bank of Korea's view that the economy can withstand higher borrowing costs and reinforcing the case for further monetary tightening. The Bank of Korea raised its benchmark rate by 25 basis points to 3% in August, its second consecutive hike, after stronger-than-expected growth and persistent underlying inflation prompted policymakers to act early. The Bank of Korea also raised its 2026 growth forecast from 2.6% to 3.3%, citing strong exports and investment driven by the global AI buildout. Its median six-month rate forecast stood at 3.25%, implying another 25 basis point hike, though Governor Shin Hyun-song said the figure pointed to a gradual tightening pace after consecutive increases.

Choi expects third-quarter growth to be broadly in line with the Bank of Korea's forecast of 0.3% quarter-on-quarter, and believes the central bank will slightly raise its growth and core inflation forecasts in November as the AI boom accelerates. JPMorgan believes that if chip-driven growth generates stronger inflation without causing significant financial market stress, rates may need to rise further. The Wall Street bank expects the Bank of Korea to raise rates in November, next February, and May, lifting the benchmark rate to 3.75%.

The chip boom is also changing the government's fiscal stance. South Korea expects national tax revenue to reach a record 478.6 trillion won ($353 billion) this year, up 28% from 2025, as semiconductor profits, special dividends from chipmakers, a stock market boom, and a consumption recovery boosted tax receipts.

Inflation is another key consideration for the Bank of Korea. Overall consumer price growth accelerated to 3.1% in August, while core inflation, which excludes volatile food and energy prices, rose to 3.4%, indicating that underlying price pressures remain firm. Sustained export strength is also improving South Korea's external position and may support further appreciation of the won, helping curb imported inflation and giving policymakers some flexibility on the timing of the next rate hike.

By destination, exports to China rose 123%, while exports to the United States surged 137%. Exports to India and the European Union increased 50% and 21%, respectively.