The South Korean economy faces increased risks of inflation and significant downside pressure, primarily driven by escalating geopolitical tensions linked to the ongoing Middle East conflict. This assessment was delivered by the finance ministry on Friday.
In its latest monthly economic report, commonly known as the Green Book, the Ministry of Finance and Economy escalated its warning from the previous month, where it had only highlighted potential economic fallout. This month’s report firmly states that “The economy has encountered growing downside risks due to the widening scope of geopolitical concerns stemming from the Middle East conflict.”
Despite recent improvements in both exports and private consumption, heightened global uncertainties and a surge in international oil prices have adversely affected consumer and business sentiment. This situation is intensifying concerns about inflation and increasing financial burdens on households across South Korea.
South Korea’s consumer prices saw a 2.2 percent year-on-year rise in March, up from a 2 percent increase in February. This acceleration was largely attributed to a sharp surge in global oil prices amidst various supply disruptions.
Reflecting the public’s growing unease, the consumer sentiment index dropped by 5.1 points from the prior month, reaching 107 in March. This marks the lowest level recorded since May 2025 and represents the most substantial decline in 15 months.
While inflation levels remain near the government’s 2 percent target, officials noted that the comparatively modest increase in March was partly due to the government’s existing fuel price cap and reduced volatility in fresh food prices. However, they issued a warning that upward inflationary pressure could further intensify as the economic impact of the Middle East conflict continues to spread globally.
Conversely, South Korea’s exports have maintained robust growth, underpinned by strong global demand, particularly for semiconductors.
In March, exports soared by an impressive 48.3 percent year-on-year, surpassing the $80 billion mark for the first time ever, propelled by record-high semiconductor shipments.
Additionally, the nation’s industrial output recorded its fastest growth in five years and eight months during February, expanding by 2.5 percent month-on-month. This strong performance was also largely a result of robust semiconductor production.
To mitigate the adverse effects of the Middle East conflict, the finance ministry confirmed that the government would sustain its emergency economic response system. This involves close monitoring of global developments and sector-specific impacts, alongside proactive measures such as the swift execution of supplementary budgets to stabilize the South Korean economy.
