Korea Development Institute (KDI) recently assessed the current state of Korea's economy as "showing signs of recovery." This view differs from last month, when it expressed greater concern about downside risks from the "Middle East war."
KDI on May 12, through its "May economic trends," stated accordingly that "semiconductor exports are rising sharply, and the service industry is improving."
First, recent exports posted high growth, led by information and communication technology (ICT) items. With robust demand related to artificial intelligence (AI) continuing, April exports of semiconductors (173.5%) and computers (515.8%) increased sharply from a year earlier. Export volumes are also showing relatively high growth, centered on semiconductors.
Among production indicators, service output is strong. In March, service output rose 5.1% from the prior month, supported by finance and insurance and by transportation and warehousing. Manufacturing, including semiconductors, is also signaling an improvement. The average operating rate in manufacturing inched up from 74.4% to 74.8% from the prior month, and the inventory ratio fell from 98.5% to 93.4%.
KDI also assessed that consumption and facility investment are maintaining a favorable trend.
However, KDI warned that downside risks to the economy still exist due to the ongoing Middle East war. KDI said, "With crude oil transport disruptions increasing production expense, consumer price gains have broadened, and inflation expectations are also rising," adding, "External uncertainty could weigh on facility investment outside the semiconductor institutional sector, and construction expense increases caused by the war could constrain a future recovery in construction investment."