Korea’s record growth masks a risky dependency

South Korea recorded the fastest economic growth among major economies in the first quarter of this year.

Real gross domestic product (GDP) expanded 1.7% from the previous quarter, the highest among 22 countries that have reported data so far. The result placed South Korea ahead of high-growth economies such as Indonesia and China, marking a sharp reversal from the previous quarter, when the economy contracted and ranked 38th out of 41 major economies.

If the trend holds, it would mark the first time in 16 years that South Korea has topped global quarterly growth rankings, since its recovery from the 2010 global financial crisis.

A strong rebound in semiconductors, fueled by the artificial intelligence boom, was the key driver. Exports rose 5.1% in the first quarter, supported by robust demand for information technology products. Semiconductors alone accounted for 37% of total exports.

Samsung Electronics and SK Hynix reported a combined 95 trillion won in operating profit in the first quarter, setting a record for the industry and underscoring the scale of the chip-led upswing.

Backed by the semiconductor rally, major domestic and global institutions have raised South Korea’s full-year growth outlook, with some projections reaching up to 3%.

Still, the strength in headline figures conceals an uneven recovery. Outside of semiconductors, growth was far weaker, with first-quarter expansion dropping to just 0.8%.

The imbalance highlights a structural dependence on a single industry. Without broader sources of growth, concerns are mounting over whether the current momentum can be sustained.

Risks are also emerging within the semiconductor sector itself, which has effectively become South Korea’s main growth engine. A large-scale labor dispute at Samsung Electronics is adding to uncertainty.

Negotiations are continuing under government mediation, but labor and management remain far apart, and talks have repeatedly failed to produce a breakthrough.

JPMorgan Chase estimates that a full-scale strike could reduce Samsung Electronics’ annual operating profit by as much as 43 trillion won. The mere prospect of strike risk at a company of this scale, without global peers such as Taiwan’s TSMC, has raised concerns about supply chain stability and investor sentiment.

For now, South Korea is trying to maximize gains from a rare semiconductor supercycle. Governments around the world are investing heavily in artificial intelligence and advanced chips, in an increasingly winner-takes-all global competition.

In response, South Korea is being urged to pursue aggressive investment and sweeping deregulation to turn its current advantage into longer-term leadership.

The underlying warning from policymakers and analysts is clear: at a fragile moment of recovery, internal disruption or policy distraction could quickly erode the momentum that has only just begun to rebuild.