South Korea posted a surprise expansion in the first quarter, but attention is shifting to cost shocks expected from the second quarter as high oil prices and a weak won threaten to squeeze manufacturers and households. The first-quarter gain also underscored the economy’s heavy reliance on semiconductors, while external risks tied to the Middle East war have yet to fully show up in the data.
Growth’s shadow behind a semiconductor-led surge
23일 the Bank of Korea said manufacturing GDP rose 3.9%, led by computers, electronics and optical equipment, including semiconductors. Lee Dong-won, director general of the BOK’s Economic Statistics Department 2, said semiconductors accounted for “a little over half,” about 55%, of the contribution. Excluding semiconductor manufacturing, the first-quarter growth rate could have fallen by more than half from 1.7%, he said.Demand for high value-added products fueled by the artificial intelligence boom helped semiconductors stay resilient even as the Middle East war pushed up global oil prices. Domestic chipmakers posted record results. Samsung Electronics’ first-quarter operating profit was 57.2 trillion won, exceeding its operating profit for all of last year, 43.6011 trillion won. SK hynix posted 37.6103 trillion won in first-quarter operating profit, nearing its full-year profit of 47.2063 trillion won in a single quarter.
Outside semiconductors, other manufacturers and domestic demand remain exposed to external variables. With South Korea heavily dependent on energy imports, rising oil prices and the exchange rate could start to compress margins across manufacturing, limiting how far semiconductors alone can carry growth.
From the second quarter, the fallout from the Middle East war is expected to be reflected more clearly. Citi has estimated that if Brent crude stays in the $82-a-barrel range, South Korea’s GDP growth this year could fall by 0.45 percentage points. Higher energy prices raise import costs for raw materials, which can feed into corporate cost pressures and consumer inflation. The won’s weakness — near 1,500 per U.S. dollar — adds to import-price burdens and could also curb corporate investment.
The second-quarter outlook, analysts say, will hinge on whether strong exports can offset higher energy and currency costs — and how widely those costs spread from manufacturing to domestic demand.
Consumer sentiment turns pessimistic
Income conditions have improved in the data, but it remains unclear whether gains tied to better terms of trade will translate into stronger domestic demand. Improved corporate earnings could lift wages and household income, but higher oil prices could erode margins and weaken wage momentum.Private consumption, which accounts for about half of the economy, held up, but weakening sentiment is raising concern. Consumer sentiment turned “pessimistic” for the first time in a year amid the Middle East war. The April Consumer Sentiment Index (CCSI) fell 7.8 points from the previous month to 99.2. It was the first reading below 100 since April last year, when it was 93.6. The drop was the steepest since December 2024, when the index fell 12.7 points during an emergency martial law incident.
The government and the central bank said the war’s spillover effects are likely to intensify from the second quarter. Lee said, “No one can know” the impact of the war, adding that credit card monitoring shows private consumption has not yet been hit, “but it is clear that the negative impact has grown because of the war.”
A Finance Ministry official said second-quarter quarter-on-quarter growth is likely to be revised down as base effects from the strong first quarter combine with construction material supply difficulties and the war-driven rise in oil prices. The official said a strong semiconductor cycle and government policies may provide some cushioning, but uncertainty remains high.
* This article has been translated by AI.
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