AI chips ignite South Korea's economic engine! GDP growth in the first quarter exceeded expectations by 1.7%.

Driven by the increase in exports propelled by the global demand for artificial intelligence technology, the South Korean economy experienced a strong rebound at the beginning of this year. Data released by the Bank of Korea on Thursday showed that the country's Gross Domestic Product (GDP) grew by 1.7% in the first quarter of the year, not only reversing the contraction trend seen in the fourth quarter of 2025, but also achieving the fastest growth since the third quarter of 2020. This reading far exceeded the 0.9% expectation of economists in market surveys, and even surpassed the most optimistic forecasts. Cho Yong-gu, a fixed income strategist at Shinyoung Securities Co., stated, "Although there are upside risks, the actual data is much stronger than expected. Net exports performed strongly, benefiting from the semiconductor cycle, which is similar to what we are seeing in the Taiwan region." Less than half an hour before the Bank of Korea released the GDP data far exceeding expectations, SK Hynix announced a five-fold increase in quarterly profits, largely due to the surge in memory chip prices supporting the global AI development trend. The economy in the Taiwan region is even hotter, with data this week showing export orders increasing at the fastest pace in 16 years, indicating continued strong demand. However, the future of the South Korean economy still faces risks. The growth momentum has been fluctuating over the past few quarters. The outlook for consumer prices was clouded by the Iran war, causing consumer confidence in March to drop to a 10-month low. The blockade of the Hormuz Strait has led to a spike in global energy prices, raising import costs for this economy heavily dependent on foreign fuel. The depreciation of the Korean won has exacerbated these pressures, sparking concerns in the market about the potential acceleration of inflation in the coming months. The Korean won depreciated over 5% against the US dollar in the first quarter, making it the worst performing currency in Asia. The Bank of Korea stated that exports grew by 5.1% in the first quarter, mainly driven by an increase in semiconductor shipments; imports increased by 3%, mainly due to an increase in machinery, equipment, and automotive imports. Analysts pointed out that semiconductor shipments grew by 139.1% year-on-year in the period, more than doubling the growth rate from the previous quarter, and the overall monthly export growth rate reached a new high since 2021. Private consumption grew by 0.5% on a month-on-month basis, higher than the 0.3% in the previous quarter; government spending growth slowed to 0.1%. Construction and facility investment grew by 2.8% and 4.8%, respectively. Uncertainties still remain The Bank of Korea is adopting a data-driven decision-making approach while assessing the potential impact of geopolitical turmoil. The newly appointed Governor Shin Hyun Song stated in his inaugural speech on Tuesday that the uncertainty surrounding inflation and growth paths has significantly increased. He added that structural challenges should no longer be viewed as external constraints, but as a key part of the operating environment of the central bank. Previous data showed that import prices in South Korea witnessed the largest increase in nearly 30 years last month, pushing overall consumer inflation above the central bank's 2% target. Raw material costs rose by over 40%, led by crude oil and energy-related products. President Lee Jae-myung has implemented measures to cap fuel prices and reduce fuel taxes to curb the surge in prices of gasoline, diesel, and kerosene, easing pressures on businesses and households. These measures aim to alleviate the inflationary pressure on households and businesses in response to the soaring energy costs. In terms of production, manufacturing grew by 3.9% on a monthly basis, led by computers, electronics, and optical products; electricity, gas, and water supply grew by 4.5%; construction grew by 3.9%; agriculture, forestry, and fisheries grew by 4.1%. Cho of Shinyoung Securities Co. stated that the first-quarter data far exceeded expectations, which could boost growth for the whole year, as a higher starting point would still result in a more favorable outcome for the entire year even if the momentum slows down later on. "Worries about growth have visibly eased," he said.