In its June Economic Trends report released on June 8, KDI noted, "Domestic demand is improving slowly, and exports are showing significant growth, particularly in semiconductors." However, it also highlighted that the negative impacts of the Middle East war are becoming evident, with rising consumer prices and a decline in oil product export volumes.
This assessment aligns with KDI's previous report from May, which indicated that the semiconductor sector was driving a surge in export prices and volumes. Nonetheless, it warned that the ongoing conflict in the Middle East continues to create economic uncertainties and that inflationary pressures are increasing.
Overall industrial production showed a slight improvement, with a growth rate of 2.4% in April, down from 3.7%. Manufacturing output rose by 1.5%, led by a 13.0% increase in semiconductor production. The service sector also maintained its upward trend, particularly in finance and insurance, which grew by 5.5%.
However, the Middle East conflict remains a significant concern. The lack of progress in ceasefire negotiations between the U.S. and Iran has resulted in ongoing disruptions to oil transportation, keeping economic risks elevated.
As international oil prices remain volatile, inflation continues to rise. In May, consumer prices increased by 3.1%, up from 2.6% the previous month, driven primarily by a 24.2% rise in oil prices. Core inflation also rose to 2.5%, an increase of 0.3 percentage points from the previous month. According to a survey by the Bank of Korea, inflation expectations have remained stable, fluctuating between 2.7% and 2.9% since March. A KDI official stated, "The rising prices of items heavily reliant on oil, such as airfare, have contributed to the increase in core inflation, and high oil prices are sustaining elevated inflation expectations."
Consumer sentiment has shown a gradual improvement, which is expected to continue in the near term. The retail sales index for April rose by 1.6%, although the month-over-month increase was smaller. The consumer sentiment index for May rebounded to 106.1, indicating a positive outlook, partly due to government support for those affected by high oil prices.
Investment in facilities remained strong, with an 8.1% increase in April. Notably, investment in semiconductor manufacturing equipment surged by 41.1%, and imports of semiconductor manufacturing equipment, a leading indicator, rose by 54.9%, indicating sustained investment in the semiconductor sector. However, uncertainties stemming from the Middle East conflict may restrict investment in sectors outside of semiconductors.
Construction investment continues to struggle, and rising costs due to the Middle East conflict are likely to hinder future recovery. In April, construction output fell by 5.5%, with declines in both the building (-6.4%) and civil engineering (-2.8%) sectors.
A KDI official remarked, "The sharp rise in prices for some construction materials is causing the construction cost deflator to increase significantly, leading to delays in project starts and extended construction periods, which could exert downward pressure on future construction investment."
In May, exports surged by 53.2%, bolstered by strong performance in information and communication technology (ICT) products. The daily average export value for semiconductors increased by 182.5%, while computer exports rose by 309.8%.
* This article has been translated by AI.
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