South Korea’s solid export growth is offsetting weak domestic demand in World Economy News 16/04/2026 Jobless rate fell in March, but suggests subdued demand South Korea’s jobless rate fell to 2.7% in March (vs 2.9% in February and market consensus). However, the details were quite weak. The decline, for example, was partly due to workers exiting the labour market rather than to job growth. The labour participation rate edged down to 64.8 (vs 64.9 in February). Also, most of the job growth was concentrated in low-wage, low-skilled service positions and self-employment. By contrast, manufacturing and salary-based employment declined. Manufacturing lost 41k jobs, almost reversing the first two months’ gain. Among service categories, those adding the most jobs were eating out and accommodation (37k), transportation (12k), and information & communications (35k). These jobs are mostly non-regular and low-wage, having a limited positive impact on household spending. We think this trend indicates subdued domestic demand. We are also concerned that supply disruptions lasting beyond two months could weaken labour market conditions across a broader range of industries. Petrochemical activity – including Naphtha Cracking Centres – utilisation rates have already dropped to their lowest levels in March. This type of enforced production slowdown is expected to become widespread and to start hurting employment in other sectors. We think government job programs will provide a buffer, but underlying conditions are likely to deteriorate. Exporters transfer increases in input costs to output prices Commodity price hikes boosted the import price index markedly by 18.4% year-on-year in March (vs 1.6% in February). The export price index rose 28.7% in March (vs 11.1% in February). We believe that Korean exports can pass higher input costs on to output prices. As such, we haven’t yet seen much damage to the terms of trade. For coal and petroleum products, export volume dropped 24%, likely due to reduced production capacity and export controls, while the value rose 36.6%. Despite the Middle East conflict, oil imports were little affected until March, when import volume rose 13.4%. We expect this to decline over the next couple of months, with its impact on production activity increasing in the second and third quarters. Meanwhile, import price increases are expected to drive domestic inflation. Although government policies have capped gasoline and utility prices so far, inflation is projected to rise significantly from April. Travel, transportation, home appliances, and electronics prices have all seen notable increases. The recent weak KRW will add pressures even more. In volume terms, exports rose 23% in March, outpacing imports at 12.3%. For the first quarter, exports rose 9.3% quarter-on-quarter, seasonally adjusted, while imports grew 4.2%. This indicates a strong net export boost to GDP. Based on stronger-than-expected exports, we expect 1Q26 GDP to grow by 1.0% (vs -0.2% in 4Q25). K-shaped recovery put policymakers in difficult position Today’s data indicates strong economic growth in the first quarter, primarily driven by resilient exports. However, domestic demand has remained quite fragile and inflationary pressures are expected to accelerate in the near future. Additionally, supply disruptions are expected to affect economic activity this quarter and into next. The government’s fiscal support (26 trillion won worth of extra spending) will likely pro