South Korea’s Kospi defied broader regional weakness and extended its record-making spree on Thursday after first-quarter GDP markedly exceeded estimates. However, the tech-led growth has left analysts cautious about the sustainability of the strong economic momentum.
While the rest of the Asian markets wilted due to a setback in the U.S.-Iran peace talks, the Kospi spiked sharply in late trading as traders digested the GDP report.
Korea Economy Makes a Comeback: Real GDP rose 1.7% quarter over quarter in the first quarter, according to an advance estimate released by the Bank of Korea. This compares to a 0.2% contraction in the final quarter of 2025 and the 1% consensus estimate. The sequential increase was the fastest growth in about 5-½ years.
On a year-over-year (YoY) basis, GDP rose 3.6%, notably faster than the fourth quarter’s 1.6% growth. Economists had expected a more modest 2.7% increase for the quarter.
Commenting on the data, ING South Korea and Japan Senior Economist Min Joo Kang said, “So far, Middle East energy supply disruptions haven’t affected the global chip cycle or AI trends.”
South Korea is home to Samsung Electronics and SK Hynix, two of the world’s largest producers of memory chips, which are critical inputs for advanced artificial intelligence (AI) systems and data processing technologies. Underscoring the strong demand was the 400% first-quarter profit growth reported by SK Hynix on Thursday.
Breaking Down Sequential Growth: Expenditure-side analysis of the GDP growth showed exports rising 5.1%, riding on the strength of semiconductor and other IT exports. Imports climbed 3%, reflecting increases in machinery equipment and motor vehicle imports. Net exports contributed 1.1 percentage points to GDP, ING’s Kang noted.
At a press briefing, Lee Dong-won, director general of the Bank of Korea’s economic statistics department, said, “Semiconductor manufacturing accounted for about 55 percent of total GDP growth in the first quarter. Earnings at major chipmakers far exceeded expectations, pushing overall growth well above the February forecast,” according to Korea Times.
Fixed asset investment jumped 4.8% as machinery and transportation equipment investment increased. Construction spending rose 2.8%. Consumption growth was weak, at 0.5% for private spending and 0.1% for government spending. Inventories deducted 0.4 percentage points from growth, potentially due to energy supply shortages. Overall, domestic demand added 0.6 percentage points to growth.
Production side analysis showed manufacturing jumping 3.9% on strength in computer, electronics and optical products. Services output, however, was anemic at 0.4%.
Consumer Sentiment Plunges: A separate BoK report showed that the composite consumer sentiment index for April fell 7.8 points month-over-month to 99.2. Consumers’ assessment of their current standard of living, future household income and current economic conditions fell five, three, and 18 points, respectively.
The one-year ahead inflation expectations was at 2.9%, up from 2.7% in February, while the three-year and five-year expectations were at 2.6% each.
Outlook Mixed: ING’s Kang expects the chip momentum to continue but warned of a slowdown in the second quarter due to energy disruptions, which are expected to affect activity across petrochemicals and manufacturing sectors.
Citing the solid first-quarter GDP print, ING raised its 2026 economic growth forecast for Korea to 2.8% from 2%. The firm, however, remains cautious. “We’re concerned that prolonged supply disruptions could hinder chip production and dampen investment in AI,” the firm said. “If that happens, the economy could be hit even harder than other major economies because it relies heavily on the chip industry.”
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