Containers for export are stacked at a port in Pyeongtaek, Gyeonggi Province, in this file photo taken May 8. Yonhap Korea's economy will likely grow at a sharper-than-expected pace of 2.5 percent this year thanks to strong exports, mainly led by the semiconductor industry, a state-run think tank said Tuesday.The revised projection by the Korea Institute for Industrial Economics & Trade (KIET) represents a 0.6 percentage-point increase from its previous estimate of 1.9 percent growth presented late last year.Despite energy supply volatility caused by the U.S.-Israeli war against Iran, the think tank said it made an upward revision considering a continued increase in exports and investment sparked by the strong performance of the semiconductor and IT sectors, and the government's expansionary fiscal policy.Korea's yearly exports will likely reach an all-time high of $924.4 billion in 2026, rising more than 30 percent from last year, on the back of rising demand for semiconductors and ICT products for artificial intelligence (AI) infrastructure, the KIET said. The country's yearly exports surpassed the $700 billion mark for the first time in 2025.With record exports, the country is expected to enjoy an unprecedented trade surplus of $220 billion this year, it added."Investment and export growth driven by the AI and semiconductor industry has turned out to be stronger than expected ... and we had expected effects of U.S. tariff policy to become visible this year, but they have not materialized as strongly as anticipated," KIET President Kwon Nam-hoon said.Kwon said the Middle East crisis poses a downward risk for the Korean economy, but the country is mitigating the impact of the war better than expected, noting that its real gross domestic product (GDP) rose 1.7 percent from three months earlier in the January-March period, posting the fastest quarterly growth in 5 1/2 years.Private consumption is forecast to increase 2.2 percent from a year earlier in 2026, thanks to government policy support and the strong performance of the domestic stock market. The benchmark Korea Composite Stock Price Index (KOSPI) has surged about 90 percent from the start of this year, making it the best performing index in the world.The KOSPI was trading more than 3 percent higher late Tuesday morning, eyeing to close over the 8,000-point mark.Facility investment will likely gain 2.9 percent this year on improved liquidity of major companies and heavy investment in advanced industries related to AI, according to the KIET.The think tank's 2.5 percent growth forecast for Asia's fourth-largest economy is in line with a separate projection made earlier by the Korea Development Institute.