Escalating geopolitical tensions related to the prolonged Middle East conflict are raising concerns about inflation and increased downside pressure on the South Korean economy, as stated by the finance ministry. The Ministry of Finance and Economy, in its monthly economic report called the Green Book, highlighted the growing risks, emphasizing the impact of the Middle East conflict on the economy. Despite improvements in exports and private consumption, uncertainties and rising global oil prices have dampened consumer and business sentiment, leading to worries about inflation and economic burdens on the population.
Amidst these challenges, consumer prices in South Korea saw a 2.2 percent increase in March compared to the previous year, primarily driven by surging global oil prices due to supply disruptions. The consumer sentiment index dropped by 5.1 points in March to 107, marking the lowest level since May 2025 and the most significant decline in 15 months. While inflation has hovered around the 2 percent target, officials cautioned that the impact of the Middle East conflict could further elevate inflationary pressures.
Despite these concerns, South Korea’s exports have remained robust, buoyed by strong global demand for semiconductors. In March, exports surged by 48.3 percent year-on-year, surpassing the US$80 billion mark for the first time, driven by a substantial increase in chip shipments. Additionally, the country’s industrial output recorded its fastest growth in five years and eight months in February, rising by 2.5 percent month-on-month, largely due to robust semiconductor production.
To mitigate the economic impact of the conflict, the government plans to uphold an emergency economic response system, closely monitor developments and sector-specific impacts, and promptly execute supplementary budgets. The Middle East conflict, which originated from U.S.-Israeli strikes on Iran in late February, has evolved into a broader regional crisis, leading to a surge in global oil prices and market turbulence. The upcoming peace talks between the United States and Iran, with their ceasefire agreement set to expire soon, are being closely watched for potential developments.
