NABO Economic Trends & Issues (No. 141)


 

Published on March 25, 2026
Published by Macro-Economic Analysis Division


 

■ Economic trends
   Recently, the Korean economy has shown improvements thanks to a recovery in the service sector and strong exports, although uncertainties such as increasing inflation triggered by the conflict in the Middle East remain a concern.
    In March 2026, total industrial production increased by 0.3% MoM, with the manufacturing and service sector growing by 0.3% and 1.4% MoM, respectively. The cyclical component of the coincident composite index increased by 0.5p MoM. Retail sales rose by 1.8% MoM, mainly driven by the sales of durable goods. Construction completion fell by 7.3% MoM, while facility investment grew by 1.5% MoM. On the fiscal side, in February, the government's cumulative total expenditure increased by KRW 12.9 trillion (11.7%) YoY. In April, the trade balance recorded a surplus of USD 23.77 billion, with exports surging by 48.0% YoY. Consumer prices increased by 2.6% YoY, largely influenced by the price increases in petroleum products. The spread between the three-year treasury bond yield and the base rate reached 66 basis points. Throughout April, the KOSPI index recorded remarkable growth, driven primarily by large-cap semiconductor stocks, closing at 6,599 at the end of the month. In February, household loans continued to grow, with the housing price index increasing by 0.15% MoM and transaction volume jumping by 24.6% MoM in March. In March, corporate loans increased by KRW 58.1 trillion YoY and the issuance of stocks and corporate bonds rose MoM to KRW 20.0 trillion. In April, the KRW/USD exchange rate fell MoM to KRW 1,476.15, with slightly reduced volatility. Foreign reserves increased MoM to USD 427.9 billion.
 

■ Economic issue analysis: Polarization between the semiconductor and other manufacturing sectors and policy implications
   In recent periods, the Korean economy has experienced a so-called 'K-shaped' recovery, a polarized economic condition in which the semiconductor sector records strong growth while most other sectors remain sluggish. Robust external demand has led to a surge in semiconductor output, but non-semiconductor sectors have been stagnant due to unfavorable foreign exchange rates, higher interest rates, and weak demand. Against this backdrop, this report explores the current status and trends of polarization between semiconductors and other manufacturing sectors and analyzes how increasing dependence on semiconductors affects the overall economic cycle. Based on this analysis, the report provides policy implications aimed at achieving stable growth and enhancing the economy's growth potential.
   Korea's manufacturing output has grown steadily since 2005. However, the output gap within the industry, mainly between the semiconductor and non-semiconductor sectors, has widened. Specifically, since 2023, a surge in demand for AI chips has reinforced the semiconductor sector's position as a growth driver of the overall manufacturing industry. Analysis shows that the manufacturing industry is currently booming, but the gap between the semiconductor sector and other sectors has recently widened even further. Considering that the visible growth of the manufacturing industry is heavily dependent on a single sector's cyclic performance, demand slowdown in the future is likely to accelerate downward pressure on the overall manufacturing industry.
   To address this widening polarization, implementing continued mid-to-long term measures is imperative. For instance, it is necessary to identify and promote core strategic businesses that can enhance the competitiveness of the overall economy through linkages with employment and services in non-semiconductor sectors; companies in AI-related industries beyond semiconductor manufacturing―such as robotics, smart manufacturing, and autonomous vehicles―should be strategically nurtured to develop global competitiveness. Meanwhile, the government needs to establish a systematic policy framework for stable management of fiscal resources as the semiconductor cycle shows greater volatility in fiscal revenues. Thanks to the semiconductor boom, the government collected KRW 84.6 trillion of corporate tax revenue in 2025, an increase of KRW 22.1 trillion (35.3%) from 2024, and this amount is expected to increase even more significantly in 2026. To ensure mid-to-long term fiscal health and promote growth potential, it is important to develop measures for efficient management of fiscal revenues, which are expected to increase significantly compared to initial projections this year.