Korea's economy is improving on the back of semiconductor exports, but analysts said the negative impact of the Middle East war is also becoming visible.
Korea Development Institute (KDI) said on Jun. 8 in its June Economic Trends that "recently, our economy has maintained a modest improvement led by a semiconductor boom," but added that "downside risks to the economy stemming from the Middle East war persist."
It maintained a positive assessment of exports, facility investment, and domestic demand. May exports rose 53.2% from a year earlier to a record $87.7 billion. KDI said, "Amid a sharp surge in export prices driven by strong semiconductors, export volumes also continued a solid increase," adding, "facility investment showed a high rate of growth centered on semiconductors."
The retail sales index, a domestic demand indicator, has continued to rise on a three-month moving average basis from February to April. The consumer sentiment index rebounded to 106.1 in May from 99.2. When the consumer sentiment index exceeds 100, it means more people expect their living conditions, the economy, and income to improve. KDI said, "The high oil price damage support payment disbursed from late April could act as an upside factor for consumption going forward."
However, other indicators such as prices, the exchange rate, and construction investment are negative due to the aftermath of the Middle East war. Consumer prices and core inflation in May rose 3.5% and 2.5%, respectively, widening from the previous month. The won-dollar exchange rate and market interest rates increased. Construction completed work, which reflects performance at construction sites, fell 5.5% in April from a year earlier, extending weakness. KDI said, "Prices of some construction materials are soaring due to the aftermath of the Middle East war," adding, "resulting delays in ground-breaking and longer construction periods could exert downward pressure on construction investment going forward."
In particular, KDI has maintained its assessment of "persistent downside risks from the Middle East war" for four months since March, and from this month it sees "some negative effects becoming visible." KDI said, "Disruptions to crude oil supply have reduced petroleum refining output and export volumes of petroleum products."