Middle East disruptions hitting economic activity in South Korea and Japan in World Economy News 01/05/2026 Korea: Output declines in refinery and semiconductor sectors South Korea’s industrial production rose 0.3% month-on-month, seasonally adjusted, in March (vs 5.3% in February, 0.6% market consensus). Oil disruptions are one reason, but a technical payback after a strong gain in February probably contributed to the slowdown. Details showed that the robust output gain in transportation – cars (7.8%) and other transportation (12.3%) – offset the decline in semiconductors (-8.1%) and oil refineries (-6.3%). The production of hybrid vehicles and automotive components rose significantly. The output of container ships and aircraft parts also recorded notable growth. We clearly see activity interruption in the petrochemical and refinery industry. Output (-6.3%), shipments (-5.4%). The utilisation rate for chemicals (-2.7%) and oil refinery (-5.2%) all dropped while inventories rose sharply 11.8%. We believe they have gone into survival mode – running the operation at a minimum level to avoid shutting down production entirely – as the supply situation worsens. We expect a sharp decline in oil supply for at least two months – in April and May – and that the weakness in refineries and related industry should intensify. Strong chip demand will continue to boost economy The drop in semiconductor activity was a surprise given the strong March export data. We believe seasonal adjustment could be a reason for the monthly fluctuation. The February gains were quite sharp. Thus, the March decline should be partly due to technical payback. Another reason could be that the strong chip performance is mostly driven by the price gain rather than the volume increase. Looking at the details, output dropped 8.1% (vs 28.2% in Feb), shipments also dropped 5.3% (vs 37.8%), and inventory dropped 19.2% after two months of gain. The utilisation rate also dropped quite sharply 7.2%. We don’t think the overall weakness was due to raw material supply issues. Instead, it seems chip manufacturers are adjusting production rates to suit their own interests. Today at Samsung Electronics’ first-quarter conference call, the company stated that while advancements in AI are increasing structural memory demand, expanding supply is likely to be limited because of the time required to build new capacity. Due to concerns about supply shortages, customers are already placing orders for 2027. Based on current orders, the gap between supply and demand in 2027 is expected to grow even larger than in 2026. Tomorrow, Korea April trade data will be released. We expect exports to grow 50% YoY. Early April data shows an 183% growth in chips and a 48% rise in petrochemical exports. Refineries pass higher input costs through to output and tight supply of chips should push up prices. We continue to believe that strong global chip demand will support overall Korean growth, outweighing the disruption of oil supplies if the energy situation follows ING’s base case scenario. GDP and BoK outlook Going forward, the negative impact of energy disruption will increase in the current quarter. But we believe that semiconductors and other transportation activities, including vessels, should remain quite strong. Meanwhile, the government’s cash payout program has just begun. The lower-70%-household income group would receive up to a $400 consumption voucher. The supplementary budget also financially supp