The South Korean government has officially assessed that downside risks to the economy are materializing as the Middle East war extends beyond a month.
The Ministry of Economy and Finance said in its "April Economic Outlook (Green Book)" released Thursday that "downside risks to the economy are intensifying due to expanded geopolitical risks from the Middle East war." The phrasing is one notch stronger than the previous month's "concerns over intensifying downside risks," suggesting that the fallout from the prolonged war is beginning to filter into the real economy in earnest.
While the government said solid semiconductor exports and improving domestic demand are continuing, it expressed concern that consumer and business sentiment could weaken due to the impact of the Middle East war, and that inflationary pressure and household burdens could mount as international oil prices rise.
The impact of the Middle East risk is becoming clearly visible in prices and consumption. The consumer price index rose 2.2% year-on-year in March, widening from a 2.0% gain the previous month, with oil product prices surging 9.9%. The consumer sentiment index plunged 5.1 points from the previous month to 107.0, marking the steepest decline in about one year and three months since the emergency martial law incident in December 2024 (-12.7 points). Discount store card approvals also fell 32.5% in March, widening from a 10.6% decline the previous month.
Positive signals were also detected. Domestic sales of Korean-made passenger cars, which had declined the previous month, rebounded with an 8.0% increase in March, while total domestic card approvals rose 8.4%, the largest gain since September last year.
Exports remained robust. March exports surged 49.2% year-on-year, while average daily exports rose 42.7%. Computers (189%) and semiconductors (151%) led the growth. Employment also held up, with the number of employed rising by 206,000 in March, maintaining gains in the 200,000 range for the second consecutive month.
"Volatility in international financial markets and energy prices is expanding, and a slowdown in trade and growth is a concern, due to the Middle East war and deteriorating trade conditions from tariffs imposed by major countries," the ministry said. "To minimize the impact of the Middle East war, we will maintain the emergency economic response system, closely monitor situational changes and sector-by-sector impacts, and actively respond to the swift execution of the supplementary budget and on-site difficulties."
