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The South Korean economy is showing signs of recovery, thanks to robust semiconductor exports and improving consumption demand, but downside risks persist due to uncertainties surrounding the Middle East, a state-run think tank said on Tuesday. 

"Exports are growing at a high rate, led by semiconductors, while domestic demand continues to improve," the Korea Development Institute (KDI) said in its monthly economic assessment, reports Yonhap news agency.

But the KDI said downside risks to the economy persist due to the ongoing war between the United States and Iran, noting that consumer prices are rising following gains in oil prices.

"Elevated oil prices are exerting upward price pressures, although the oil price cap and expanded fuel tax cuts partially contained consumer price gain," it added.

Consumer prices rose by 2.6 percent from a year earlier in April, the fastest pace in 21 months, mainly driven by soaring fuel costs amid the Middle East conflict, according to government data.

Despite such downside risks, economic activity continued to improve, led by services, the KDI said.

Industrial production rose by 3.6 percent in March on strong semiconductor production, while services production expanded 5.1 percent. Construction production, however, remained weak, dropping 5.4 percent.

Retail sales added 5 percent in March, continuing to grow at a relatively strong pace, according to the think tank, said the report.

"Exports sustained rapid growth, supported by strong ICT products, even as the war in the Middle East added uncertainty to the external trade environment," the KDI added.

South Korea's exports increased 48 percent from a year earlier in April, totaling at US$85.89 billion.

Notably, chip exports spiked 173.5 percent on-year to $31.9 billion, the highest-ever figure for any April.