Growth rate of 1.7%, exports up 53%, but consumption, construction and youth employment lag

[Yonhap]
[Yonhap]

South Korea's economy posted first-quarter growth of 1.7 percent, fueling hopes of a recovery, but a new analysis warns that a semiconductor export boom is masking a deepening slump in domestic demand and youth employment.

Aggregate indicators such as the growth rate and exports are improving, yet the economy that ordinary people actually feel remains cold — a widening "K-shaped economy" in which different sectors move in opposite directions.

The Hyundai Research Institute said Monday in its report "Recent Economic Trends and Business Conditions Assessment (Second Quarter 2026)" that policymakers must stay alert to a deepening K-shaped polarization hidden behind strong headline figures.

The report assessed that South Korea has entered a recovery phase on the back of semiconductor-led export strength. First-quarter GDP growth came in at 1.7 percent quarter-on-quarter, rebounding from a contraction of 0.2 percent in the fourth quarter of last year. Private consumption, facilities investment and construction investment all rose, while exports jumped 5.1 percent quarter-on-quarter to drive overall growth.

The institute cautioned, however, that the warmth of the recovery has yet to spread across the broader economy.

Retail sales in April fell 3.6 percent from the previous month, and the growth rate for durable goods consumption slowed sharply — from 15.2 percent in March to just 1.6 percent in April — partly due to a drop in domestic passenger car sales. The institute attributed the weakness to a chilling of consumer sentiment amid uncertainty stemming from high oil prices.

The construction sector also continued to struggle. The value of construction work completed fell for 24 consecutive months since May last year. However, new construction orders rose for six consecutive months, suggesting a possible rebound ahead.

Exports, by contrast, surged sharply, led by semiconductors. Exports in May jumped 53.2 percent from a year earlier, with semiconductor exports soaring 169.4 percent. Shipments to the United States rose 59.1 percent and those to China climbed 80.9 percent. The institute noted that semiconductors' share of total exports has expanded from roughly 24 percent a year ago to about 42 percent recently.

The concern is that the higher the dependence on semiconductors, the more the sustainability of the recovery hinges on conditions in that single industry. "The biggest risk is that exports are leading the current recovery and that a large portion of those exports depend on a favorable semiconductor cycle," the institute said. "If the global semiconductor supercycle ends sooner than expected, the current recovery could falter."

The labor market also offers little sense of recovery. The number of employed workers in April rose by just 74,000 from a year earlier, the smallest gain since December last year. Manufacturing employment fell by 55,000 and construction employment dropped by 8,000. Youth employment — covering those aged 15 to 29 — declined for 42 consecutive months. The institute said the data showed "early signs of a jobless recovery."

Inflation added to the list of concerns. Import prices in April rose 20.2 percent from a year earlier, driven by higher global oil prices and a weaker won, while producer prices climbed 6.9 percent. Consumer prices in May rose 3.1 percent, returning to the 3 percent range for the first time in 26 months.

The Hyundai Research Institute identified three key downside risks for the economy going forward: the entrenchment of the "triple high" environment of elevated oil prices, a high exchange rate and high interest rates; the uncertain domestic demand stimulus effect of a supplementary budget; and supply-demand uncertainty in the semiconductor market. The institute also urged the government to strengthen the supplementary budget's economic stabilization role to ease K-shaped polarization obscured by strong headline numbers, and called on policymakers not to rest on a semiconductor-driven recovery but to focus on securing new growth engines for the post-semiconductor era.


fact0514@heraldcorp.com