Semiconductor Boom Drives South Korea’s First-Quarter GDP Up 1.7%

Highest in 5 1/2 Years

Semiconductors Account for 55% of Growth

South Korea’s economy posted a surprise 1.7% expansion in the first quarter, driven by a historic semiconductor boom. Semiconductors accounted for 55% of the gain.

The Bank of Korea said on April 23 that real gross domestic product rose 1.7% from the previous quarter on a preliminary basis. That marked a sharp rebound from a 0.2% contraction in the fourth quarter of last year and came in nearly double the central bank’s February forecast of 0.9%. It was the fastest quarterly growth since the third quarter of 2020, when the economy expanded 2.2%.

South Korea’s economy shrank 0.2% in the first quarter of last year, then rebounded with growth of 0.7% in the second quarter and 1.3% in the third quarter before slipping back to a 0.2% contraction in the fourth quarter.

The Middle East war, which began in late February with US and Israeli strikes on Iran, had been expected to weigh on growth. Instead, exports were the dominant engine. Exports led by semiconductors added 1.1 percentage points to headline growth, while domestic demand, including consumption and investment, contributed 0.6 percentage point.

On the production side, manufacturing, including semiconductors, contributed 1 percentage point to growth. The semiconductor manufacturing industry alone is estimated to have accounted for more than 0.9 percentage point. Construction, a weak spot in recent quarters, also contributed 0.2 percentage point in the first quarter. It was the first time in eight quarters that construction did not drag on the economy, since the first quarter of 2024, when it also added 0.2 percentage point.

Second-quarter and full-year growth now hinge on how the Middle East war unfolds. The Ministry of Economy and Finance said a slowdown in the second quarter appears unavoidable because of a base effect from the strong first quarter and the impact of the war. Citi raised its forecast for South Korea’s 2026 economic growth to 2.9% from 2.2%.

Jung Young-hyo and Nam Jung-min, Hankyung.com reporters, hugh@hankyung.com