Government Warns of 'Downside Risks' for Third Consecutive Month Amid Middle East Crisis

Recent Economic Trends, May Issue (Green Book)
Rising Oil Prices Lead to Higher Inflation and Greater Burden on Livelihoods
Semiconductor-Led Exports Remain Strong

The government has recently diagnosed that downside risks stemming from the Middle East war have persisted for three consecutive months in its economic outlook. Despite robust exports led by semiconductors, the government expressed concerns that the prolonged war could increase the burden on people's livelihoods by driving up prices.

In the May issue of the "Recent Economic Trends (Green Book)" published on the 15th, the Ministry of Economy and Finance assessed, "Recently, the Korean economy has continued its recovery momentum, with a significant expansion in growth in the first quarter. However, downside risks to the economy due to the Middle East war are ongoing."

The government positively evaluated the strong export performance centered on semiconductors and improvements in domestic demand, such as consumption. However, it analyzed, "There are concerns about weakened consumer sentiment due to the impact of the Middle East war, as well as rising prices and increased burdens on people's livelihoods caused by higher international oil prices."

In fact, recent economic sentiment has shown signs of weakening. The Consumer Sentiment Index (CSI) fell by 7.8 points from the previous month to 99.2 in April. The Corporate Business Survey Index (CBSI) saw its April performance index rise by 0.8 points to 94.9 compared to the previous month, and the May outlook index also increased by 0.8 points to 93.9, but both remained below the baseline of 100, indicating continued sluggishness.

Inflationary pressures also intensified. In April, consumer prices rose 2.6% year-on-year, with the rate of increase widening compared to March's 2.2%. The cost of living index also rose by 2.9%. Notably, due to the impact of the Middle East war, petroleum product prices surged from a 9.9% year-on-year increase in March to 21.9% in April.

President Donald Trump signed a proclamation imposing a 25% tariff without exceptions on steel and aluminum products imported into the United States, and announced that tariffs on automobiles and semiconductors are also under consideration. On February 13, 2025, export automobiles are waiting to be shipped at Pyeongtaek Port in Gyeonggi Province. Photo by Kang Jinhyung

The impact of rising international oil prices also continued. The price of Dubai crude fell somewhat from $128.5 per barrel in March to $105.7 in April, but domestic gasoline prices rose from 1,836 won per liter in March to 1,986 won in April. Diesel prices also increased from 1,829 won to 1,979 won over the same period.

However, major real economic indicators continued to show relatively sound trends. According to the March industrial activity trends, total industrial production increased by 0.3% from the previous month, driven by gains in manufacturing and services. Manufacturing output rose by 0.3%, service sector output by 1.4%, but construction output decreased by 7.3%. During the same period, facility investment increased by 1.5% month-on-month, and retail sales rose by 1.8%, reflecting improvements in domestic demand.

Exports continued to perform strongly, led by semiconductors. In April, exports rose by 48.0% year-on-year, and average daily exports also increased by 48.0% to $3.58 billion during the same period. The increase was mainly driven by higher exports of semiconductors, computers, and ships.

Employment growth slowed. The number of employed persons in April increased by 74,000 compared to the same month last year, a significant decrease from the increase of 206,000 recorded in March. The unemployment rate remained unchanged year-on-year at 2.9%.

Regarding the global economy, the government diagnosed that the impact of the Middle East war is increasing volatility in international financial markets and energy prices, and there are concerns about supply chain disruptions, intensified inflationary pressures, and slowing growth.

The government stated, "To minimize the impact of the Middle East war, we will maintain an emergency economic response system, swiftly execute supplementary budgets such as high oil price relief payments, and make every effort to stabilize the supply and demand of key items and prices to ensure the stability of people's livelihoods."

This content was produced with the assistance of AI translation services.