By Cynthia Kim
SEOUL, April 23 (Reuters) - South Korea's economy delivered its fastest growth in nearly six years last quarter, smashing forecasts as booming chip exports rode a global surge in AI investment, though rising risks from the Middle East war threaten to cut into the record earnings.
Gross domestic product expanded 1.7% in the January-March quarter from the prior three months, the Bank of Korea said, blowing through the median Reuters poll estimate of 1.0% by a wide margin.
The higher growth
was powered by a 5.1% jump in exports, led by shipments of "IT components including semiconductors" used in artificial intelligence infrastructure, the BOK said.
The expansion marked the strongest quarterly pace since the third quarter of 2020 when Asia's fourth-largest economy was rebounding from the COVID-19 pandemic shock.
The robust performance gives the Bank of Korea some breathing space to hold interest rates, currently at 2.50%, though Stephen Lee, an economist at Meritz Securities, said the relief may be short-lived as geopolitical tensions and higher energy costs weigh on growth momentum.
"Going forward, we see a downside in second quarter GDP due to higher oil price causing damage on consumption and corporate capex," Lee said. However, he expects the strong GDP outcome to help ease the drag in the coming quarters.
In the first quarter, red-hot demand for Korean chips linked to the AI boom was enough to underpin the broader economy.
On Thursday, SK Hynix posted a more than five-fold jump in first-quarter operating profit to a record high, driven by demand from global tech giants to build AI data centres.
That followed rival Samsung Electronics' eightfold jump in quarterly profit earlier this month.
In the first quarter, private consumption rose 0.5% after showing tentative signs of recovery in January and February as household confidence improved, while government expenditure grew just 0.1%.
Facility investment gained 4.8% after shrinking 1.7% in the last quarter of 2025.
From a year earlier, South Korea's economy grew 3.6%, compared with a 1.6% expansion in the fourth quarter and beating a median estimate for 2.7% growth.
(Reporting by Cynthia KimEditing by Ed Davies and Shri Navaratnam)
