Korea Development Institute (KDI) said the downside risk to the domestic economy is expanding and upward pressure on prices is growing due to the fallout from the Middle East war.
KDI said in its April economic trends on the 7th that "while our economy has maintained a modest improvement, downside risks are expanding due to a surge in international oil prices and supply chain instability stemming from the Middle East war."
So far, real-sector indicators are relatively solid. KDI said, "Domestic demand is improving modestly, and exports are also maintaining a high increase centered on semiconductors," adding, "Consumption and facility investment are showing an improving trend, and the decline in construction investment has eased somewhat."
However, it said the trend has been shaken as external shocks from the Middle East war have intensified since March. With the surge in oil prices and increased uncertainty, sentiment among corporations and consumers fell in tandem, and constraints on investment recovery have grown.
By institutional sector, KDI said of facility investment, "Although it showed a somewhat high increase centered on semiconductors, future uncertainty could constrain facility investment." On construction investment, it said, "Amid continued weakness in groundbreakings, expense increases caused by the war could slow the recovery."
Exports maintained a high growth rate centered on information and communication technology (ICT) items, but uncertainty in trade conditions has expanded due to factors such as a sharp drop in exports to the Middle East.
Prices have already started to be affected. In March, the consumer price index rose 2.2%, widening from 2.0% the previous month due to a surge in petroleum product prices. KDI said, "There is a possibility that rising oil prices will gradually spread to items other than petroleum products."
Financial markets also reacted sensitively. Treasury bond yields rose and stock prices fell, while the won-dollar exchange rate climbed into the 1,500-won range, sharply increasing volatility.
KDI said, "Global economic growth is expected to slow due to factors such as surging oil prices and supply chain instability."