Korea's all-industry production rose 1.7% in the first quarter, the largest increase in 17 quarters, according to data released by the government. The figure matched exactly the first-quarter gross domestic product (GDP) growth rate previously announced by the Bank of Korea. Analysts said the economy maintained its recovery momentum, with production, consumption, and investment rising together despite external shocks from the U.S.-Iran war.
According to the "March Industrial Activity Trends" released by the Korea Data Agency on the 30th of last month, Q1 all-industry production climbed 1.7% from the previous quarter, marking the largest increase in 17 quarters since the fourth quarter of 2021 (2.7%). The simultaneous rise of six major indicators — mining and manufacturing (2.7%), services (1.2%), retail sales index (2.4%), facility investment (12.6%), and construction completed (1.2%) — was also the first in 11 quarters since the second quarter of 2023.
March figures, which first reflected the Middle East war, also supported the recovery phase. All-industry production (0.3%), retail sales (1.8%), and facility investment (1.5%) all rose from the previous month, recording a "triple increase." This was the first such occurrence in six months since September last year. The all-industry production index (seasonally adjusted) reached 118.3 (2020=100), continuing its upward trend for a second consecutive month after rebounding 2.1% in February following a 0.8% decline in January.
A Ministry of Finance and Economy official said, "Policy effects such as domestic demand recovery support and capital market revitalization are becoming visible, and swift responses including maximum price measures have minimized the war's impact." The official added, "Overall, the economy has held up well without adjustment."
Mining and manufacturing production rose 0.3%. Semiconductors (-8.1%) and machinery and equipment repair (-12.4%) retreated, but automobiles (7.8%) and other transport equipment (12.3%) drove the overall gain. Strong production of hybrid passenger cars and container ships was decisive. The decline in semiconductors was interpreted as a temporary base effect following the previous month's record high surge of 28.2%. Lee Du-won, economic trends statistics review officer at the Data Agency, said, "The semiconductor industry itself remains strong, and semiconductor prices continue to rise." Petroleum refining (-6.3%) was sluggish due to a combination of the Middle East war, seasonal factors, and the government's naphtha export restrictions.
Services production rose 1.4%. The finance and insurance sector (4.6%) performed well on the back of a strong stock market, while transportation and warehousing (3.9%) and water, sewage, and waste treatment (3.0%) also rose together as maritime freight rates and recycling prices climbed due to the Middle East situation.
The retail sales index, an indicator of consumption, rose 1.8%. Sales of durable goods such as communication devices and computers (9.8%) surged on the launch of new mobile phones including the Galaxy S26 and new semester PC demand, while sales of semi-durable goods such as duty-free bags and cosmetics (0.3%) also increased thanks to the inflow of foreign tourists. According to the Korea Tourism Organization, 2,045,992 foreign visitors came to Korea in March, when BTS held their Gwanghwamun comeback concert, up 26.7% from 1,614,596 in the same period last year. "We see consumption, which had been poor for three years, as bottoming out and rising," Lee said.
Facility investment also rose 1.5%, extending its upward trend. Machinery including semiconductor manufacturing equipment (-0.3%) declined, but transport equipment (5.2%), including other transport equipment, led the overall gain due to the delivery of previously contracted aircraft. Meanwhile, construction completed, which measures the construction performance of domestic builders, fell 7.3% on a base effect following the previous month's surge (13.0%). The cyclical component of the coincident composite index rose 0.5 point from the previous month, and the cyclical component of the leading composite index rose 0.7 point.
However, the full impact of the Middle East war shock is likely to materialize in April and May. "Despite the Middle East war, existing major trends such as production are being maintained," Lee said. "Direct effects are expected to appear in April and May." A Ministry of Finance and Economy official also said, "The impact will vary depending on how long the Strait of Hormuz blockade continues."
