As the United States-Israeli war on Iran drags on, South Korea is beginning to feel the negative economic impacts, its finance minister said on May 15.

The impact on the real economy, people's livelihoods — including prices and employment — and industries is becoming visible, said South Korean Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol in a meeting on government responses to the Middle East crisis.

"The government will closely monitor changes in internal and external conditions to minimize the hardships faced by the public due to the Middle East shock," Koo was quoted by the Ministry of Finance and Economy as saying.

The warning came despite the country's economic resilience amid the shock of the Middle East conflict, with Koo noting new records in exports, the current account balance, and stock market indexes.

In its monthly economic report, known as the Green Book, the ministry has warned that the Asian economy is facing lingering "downward pressure" stemming from the Middle East conflict despite economic expansion and a continued recovery trend shown in the first quarter.

Consumer prices rose 2.6 percent year-on-year in April, compared with 2.2 percent in March, marking the fastest pace in 21 months. The consumer sentiment index dropped 7.8 points from a month earlier to 99.2 in April.

South Korea has implemented emergency fuel price caps to cope with the crisis, and Koo said oil refiners' supply prices are below the government-set ceiling, with retail prices at gas stations also slightly declining.

"The global economy is at the point where a new paradigm begins," said Koo.

Koo said the government is preparing a growth strategy for the second half of this year, focusing on strengthening economic security and energy transition by taking lessons from the war in the Middle East.

The government will also work to ease economic polarization and carefully review the changing economic environment, such as the semiconductor sector's strong performance.

Yang Jun-sok, an economics professor at the Catholic University of Korea in Seoul, said the recent price increase are concentrated on oil-related products, rather than the broad economy, since core inflation remained stable at 2.2 percent.

Though strong exports seem to have offset the negative impact of the war so far, he said this has also created "K-shaped growth" with some sectors booming and others struggling, which will present difficult policy challenges for the near future.

According to the Green Book, export saw a significant increase of 48 percent year-on-year in April based on semiconductor shipments.

"The economy is facing a 'boom' and a 'slowdown' simultaneously," Yang told China Daily.

Kang In-soo, a professor of economics at Sookmyung Women's University in Seoul, said sectors among the hardest hit include energy and transportation, service industry, airlines and logistics, and petrochemicals.

"Petroleum product prices alone jumped 21.9 percent from a year earlier — the sharpest increase since the early phase of the Russia-Ukraine (conflict) in 2022," Kang In-soo, a professor of economics at Sookmyung Women's University in Seoul, told China Daily.

While the current situation is considered manageable because headline inflation remains below 3 percent, he said concerns among policymakers are rising over "second-round effects", where higher fuel costs begin to drive up broader service and consumer prices.

Kang said semiconductor-driven exports may not be strong enough to fully neutralize the downside risks from the Middle East conflict in the second half of the year as the country's current recovery is unusually concentrated in artificial intelligence-driven semiconductor exports.

"That creates both resilience and vulnerability at the same time," said Kang.

Apart from maintaining growth by supporting the semiconductor sector and AI, Yang of Catholic University of Korea said he believes the government will address the K-shaped growth by helping lagging industries and individuals in the second half of this year.

But the big questions will be whether to increase government spending given that the original 2026 budget was already the highest in history, said Yang.

kelly@chinadailyapac.com