Economy continues 'gradual improvement' on strong chip exports: KDI

Containers are waiting to be shipped at a port in Busan, June 1. Yonhap

The Korean economy continued to improve gradually, supported by semiconductor-led strong exports, amid lingering uncertainties stemming from the Middle East, a state-run think tank said Monday.

"Despite the downside risks to the economy posed by the war in the Middle East, the Korean economy has continued to show gradual improvement, driven primarily by the semiconductor boom," the Korea Development Institute (KDI) said in its monthly economic assessment.

The KDI used the phrase "gradual improvement" this month rather than last month's assessment of "signs of recovery," citing concerns that adverse effects from the Middle East war are spilling over into other sectors of the economy.

Korea's exports surged 53 percent in May from a year earlier, extending their strong momentum amid the semiconductor supercycle.

Industrial output gained 2.4 percent in April from a year earlier.

Output in the mining and manufacturing sector, a key pillar of the economy, increased 1.5 percent on-year supported by a 13 percent rise in the semiconductor sector.

Retail sales increased 1.6 percent on-year in April, slowing from a 5 percent gain in the previous month, but the KDI said the recovery trend remained intact in April, noting that consumer sentiment rose to 106.1 in May from 99.2 a month earlier. The government's cash handouts are also expected to support consumption.

"However, disruptions to crude oil shipments caused by the war in the Middle East persist, and downside risks to the economy remain," it said. "While persistently high oil prices have fueled consumer inflation, production costs are also rising."

Consumer prices rose 3.1 percent in May, accelerating from the previous month's 2.6 percent, while core inflation, which excludes volatile food and energy prices, advanced 2.5 percent last month from 2.2 percent in April.

"High oil prices weighed heavily on consumer prices," the KDI said. "Prices of items such as airfares, which are closely related to oil prices, pushed up core inflation."