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AI VS ENERGY

South Korea seems to be booming – but in reality, the country is “being tugged in opposing directions,” according to Min Joo Kang, senior economist, South Korea and Japan, at ING.

“AI-driven growth is gaining traction, while oil shocks are stoking inflation and weighing on demand,” she said in a note, adding that so far, the AI boom is trumping the energy shock.

Even as refineries are facing supply shortages, robust price moves have sent South Korean exports surging, while higher imports point to more capex investment, she said.

Both imports and exports are set to slow, but the former should fall more quickly than the latter - meaning “net exports will likely continue to contribute positively to growth in 2Q26.”

Exports are also likely to be boosted by strong price effects, Kang said, and positive terms of trade should support earnings.

But, domestic prices are under pressure for both producers and consumers, she said, thanks to rising petroleum prices and higher housing costs, for example.

And then there’s the asymmetric impact of the war – while manufacturers have been able to stick with a somewhat positive outlook, domestic-oriented sectors are feeling the impact of higher prices and lower demand.

“With a widening gap between IT and Non-IT sectors, and between external and domestic economy, the growth imbalances could accumulate in coming quarters.”

Talk about a complicated picture...

(Sophie Kiderlin)

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