Despite escalating external risks from the Iran conflict, South Korea's exports maintained strong growth momentum in March, providing a significant buffer for the economy, driven by robust demand for memory chips. Data released by the Korea Customs Service showed that exports, adjusted for working-day differences, surged 41.9% year-on-year in March. Unadjusted exports rose 48.3% compared to the same period last year, significantly exceeding the revised 28.7% growth recorded in February. Imports during the same period increased by 13.2%, resulting in a trade surplus of $25.74 billion.
Semiconductors remained the primary driver of export growth. Chip exports reached $32.8 billion, setting a new record high. This was mainly attributable to sustained, strong global demand for DRAM and NAND flash memory chips from South Korea's two memory chip giants, Samsung Electronics and SK Hynix, fueled by the worldwide artificial intelligence (AI) boom. Driven by ongoing global investment in AI and data centers, South Korea's monthly chip exports experienced a staggering year-on-year increase of 151.4% in March.
The Ministry of Trade noted that exports of automobiles, petroleum products, and computers also saw growth. Petroleum product exports surged by nearly 55% due to soaring crude oil costs resulting from the Middle East conflict. However, data from the trade ministry indicated that export volumes declined after export restrictions took effect on March 13. Exports of gasoline, diesel, and kerosene fell by approximately 5%, 11%, and 12% year-on-year, respectively. Petrochemical exports showed a relatively moderate increase of 5.8%, as rising crude oil prices were only partially passed on to finished product prices. In the fourth week of March, as the conflict's impact intensified, petrochemical export volumes decreased significantly year-on-year, while exports of naphtha, which is also subject to export restrictions, plummeted 22% for the month.
The data suggests that, even facing multiple pressures including soaring energy prices and heightened geopolitical uncertainty, South Korea's export engine continues to operate robustly in the short term. The Iran conflict has pushed up international crude oil prices, not only increasing import costs but also adding inflationary risks for South Korea, which is highly dependent on overseas energy. To mitigate the secondary impacts of the Middle East crisis on the South Korean economy, the government of Lee Jae-myung has proposed a supplementary budget of 26.2 trillion won (approximately $17 billion). This budget is intended to support consumers and businesses, including measures to stabilize high fuel prices and provide subsidies for low-income households and small businesses.
The current resilience shown by exports may provide support for the Bank of Korea to maintain its cautious monetary policy. Policymakers need to strike a balance between robust external demand and rising financial stability risks. Last month, the central bank stated that the financial system remains broadly stable but warned that an escalation of the situation triggered by the Iran conflict could lead to sharp volatility in foreign exchange and asset markets. Bank of Korea Director Lee Soohyung pointed out that higher energy prices could push up inflation, while uneven economic growth and a tightening financing environment would burden vulnerable sectors, thereby exacerbating credit risks. The Middle East crisis, by simultaneously dampening economic growth and fueling inflation, places the Bank of Korea in a difficult position. Governor Lee Chang-yong will chair his final interest rate decision on April 10 during his term, after which Shin Hyun-song will take over. Markets are closely watching whether inflation risks will ultimately push the central bank's policy toward a more hawkish stance.
Analyzing exports by destination, shipments to China grew by 64.2%, exports to the United States increased by 47.1%, and exports to Central and South America rose by 37.7%.
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