SEOUL, April 23 (AJP) — From the headline, South Korea’s economy looks robust — gross domestic product posting its strongest growth in more than five years while chipmakers log staggering margins nearing 70 percent.
But beneath the surface, the expansion is widely seen peaking, exposing structural fault lines from overreliance on a single sector and mounting inflationary pressure.
According to the Bank of Korea on Thursday, the nation’s GDP grew 1.7 percent from the previous quarter, the fastest pace since the third quarter of 2020.
Yet the strength fades on closer inspection. The recovery remains heavily skewed toward semiconductors, underscoring a deepening K-shaped divergence within the economy.
Exports contributed 1.1 percentage points — more than 60 percent of total growth — with chips alone accounting for roughly 55 percent of that figure. Without the semiconductor boom, growth would likely have stayed below 1 percent, the central bank acknowledged.
Corporate earnings tell a similar story of concentration. Samsung Electronics posted 57.2 trillion won ($38.65 billion) in operating profit, while SK hynix logged 37.6 trillion won. Together, the two accounted for 66.5 percent of the 142 trillion won total operating profit expected from KOSPI-listed firms — more than doubling their share from about 26.7 percent a year earlier.
The dominance is increasingly reflected in financial markets. The combined market capitalization of the two firms has surged from around 30 percent of the KOSPI early last year to 41.1 percent as of Thursday. As market movements hinge more heavily on these stocks, volatility has intensified, with the KOSPI Volatility Index more than doubling from 22 a year ago to 53.
Few are willing to contemplate the downside should the chip cycle turn.
Behind the headline strength, policymakers are bracing for a second-quarter inflection as the delayed impact of the Strait of Hormuz disruption begins to feed through the economy.
“The impact remained minimal through the first quarter as vessels that passed through the strait before the closure arrived in Korea by late March,” said Lee Dong-won, director general of economic statistics at the Bank of Korea.
“The squeeze from the blockade will be reflected in second-quarter data,” he said. “It is clear that the conflict in the Middle East has placed upward pressure on inflation and downward pressure on economic growth.”
This adverse mix — rising inflation alongside slowing growth — dominated discussions at the first policy meeting between Finance Minister Koo Yun-cheol and new Bank of Korea Governor Shin Hyun-song on Thursday.
The central bank has already signaled it will revise its inflation outlook closer to 3 percent this year while lowering its growth forecast from around 2 percent.
Energy prices are already feeding through to the real economy. As of April 22, gasoline prices in Seoul averaged 2,041 won per liter, up 16.7 percent from 1,749.6 won at the onset of the conflict. Diesel prices, critical for logistics, climbed 21.9 percent to 2,028 won.
The ripple effects are spreading across transport and trade. Korean Air’s fuel surcharge on the Incheon–Los Angeles route will jump 80.1 percent to 501,000 won starting May 1, reflecting disruptions in jet fuel supply — a key export for Korean refiners.
Shipping costs are also surging. The Shanghai Containerized Freight Index (SCFI) has risen 41.5 percent from 1,333 in late February to 1,886 as of April 17, with some routes seeing freight rates increase severalfold depending on cargo and destination.
Consumer sentiment is already deteriorating. The Bank of Korea said the Composite Consumer Sentiment Index fell 7.8 points in April to 99.2, slipping below its long-term average for the first time in a year — the sharpest drop since December 2024.
Nearly 90 percent of households cited rising petroleum prices as their primary concern, more than 2.5 times the share worried about industrial goods.
Bond yields moved in the opposite direction of the chip-blinded stock market. Both the three-year and 10-year government bond yields added around 9 basis points respectively to 3.453 percent and 3.787 percent by midday Thursday, whereas the Kospi finished a new historic high.
The Korean won remains under sustained pressure. The currency has weakened about 9 percent from 1,367 per dollar in June 2025 to around 1,480 this month — a far steeper decline than the 1–2 percent depreciation seen in the Japanese yen and Chinese yuan over the same period.
As external shocks begin to collide with domestic imbalances, the question is no longer how strong the first quarter was — but how quickly the momentum will unravel in the quarters ahead.
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