SEOUL, April 17 (AJP) -South Korea’s government on Friday highlighted increased "downside risks" for the economy as
the prolonged Middle East conflict fuels inflationary expectation and dampens domestic sentiment.
In its monthly “Green Book” report for April, the Ministry of Economy and Finance said “downside risks to the economy are increasing” due to heightened geopolitical uncertainty stemming from the war — toned up from last month’s milder phrasing of “concerns over rising downside risks.”
The shift reflects growing concern that the impact of the conflict is beginning to filter through the broader economy.
“Exports, led by semiconductors, have remained strong and domestic demand had been on a recovery trend, but the Middle East war is weighing on consumer and business sentiment, while higher global oil prices are adding to inflation and the burden on livelihoods,” the ministry said.
Recent data points show early signs of strain.
Consumer prices rose 2.2 percent in March from a year earlier, accelerating from 2.0 percent the previous month, driven largely by a sharp rebound in energy costs. Petroleum prices surged 9.9 percent on-year, reversing a decline in February as global oil prices spiked amid the conflict.
Sentiment indicators also weakened. The consumer sentiment index fell 5.1 points to 107.0 in March, while business sentiment readings edged lower, pointing to growing caution among households and firms.
Consumption data painted a mixed picture. Card spending at discount stores dropped sharply, while growth in department store sales slowed, suggesting softening discretionary demand. Still, overall card spending rose at the fastest pace since September, and domestic car sales rebounded, indicating that a broader consumption downturn has yet to take hold.
“We see pockets of weakness across sectors, but it is difficult to conclude that overall consumption has turned down,” a ministry official said.
External demand continues to provide a key buffer.
Exports jumped 49.2 percent in March from a year earlier, with semiconductors and computers leading gains, underscoring the resilience of Korea’s tech-driven trade sector despite external shocks.
The labor market also remained relatively stable, with employment rising by 206,000 in March, marking a second consecutive month of gains above 200,000.
Looking ahead, the ministry warned that global conditions remain fragile.
“Volatility in international financial markets and energy prices has increased due to the Middle East conflict and tariff measures by major economies, raising concerns over slower trade and growth,” it said.
The government said it will maintain an emergency economic response system, closely monitor developments and push for swift execution of supplementary budget measures to cushion the fallout.
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