Seoul: The South Korean economy is showing signs of recovery, thanks to robust semiconductor exports and improving consumption demand, but downside risks persist due to uncertainties surrounding the Middle East, a state-run think tank said Tuesday.

According to Yonhap News Agency, the Korea Development Institute (KDI) highlighted in its monthly economic assessment that "exports are growing at a high rate, led by semiconductors, while domestic demand continues to improve." However, the KDI cautioned that the ongoing war between the United States and Iran continues to pose significant risks to the economy, particularly noting the effect on consumer prices, which are rising in response to increasing oil prices.

The KDI reported that the elevated oil prices are exerting upward pressure on consumer prices, though measures such as the oil price cap and expanded fuel tax cuts have partially contained the increase. Government data indicates that consumer prices rose by 2.6 percent in April compared to the previous year, marking the fastest pace in 21 months, primarily driven by soaring fuel costs amid the Middle East conflict.

Despite these challenges, the KDI noted that economic activity continues to improve, particularly in the services sector. Industrial production increased by 3.6 percent in March, driven by strong semiconductor production, while services production expanded by 5.1 percent. However, construction production showed weakness, declining by 5.4 percent. Retail sales also demonstrated resilience, growing by 5 percent in March.

The KDI further noted that exports maintained rapid growth, bolstered by strong ICT products, even as the Middle East conflict introduced uncertainty to the external trade environment. South Korea's exports surged by 48 percent year-on-year in April, reaching US$85.89 billion. Notably, semiconductor exports experienced a significant jump, rising by 173.5 percent to $31.9 billion, marking a record high for any April.