The Korean economy is tracing a steep upward curve driven by strong export momentum from the semiconductor supercycle. While the economic growth forecast was initially set at 2.0% at the start of the year, it has now surged to the early-to-mid 3% range.
However, concerns are also being raised about industrial and class polarization without improvement in the felt economy, as the warmth from semiconductors is concentrated only in certain sectors.
On the 19th, the Korea Development Institute (KDI) revised its forecast for South Korea's GDP (gross domestic product) growth rate this year to 3.2%, the highest among major domestic and international institutional investors.
Prior to KDI, the government announced a growth forecast of 3.0%, and the Bank of Korea released a forecast of 2.6%. Among international organizations, the OECD (OECD), International Monetary Fund (IMF), and Asian Development Bank (ADB) each projected 2.6% growth.
KDI raised its growth outlook by reflecting robust exports and increased capital investment driven by the global semiconductor boom, despite the ongoing Middle East war.
Specifically, of the 0.7 percentage points by which the forecast was revised upward from the previous estimate (2.5%), 0.6 percentage points were attributable to semiconductors. According to KDI, more than half of this year's 3.2% growth forecast is related to semiconductor-driven growth.
In fact, KDI forecasts that exports will increase by 8.7% and capital investment by 7.9% this year due to the semiconductor boom. These figures represent increases of 4.1 percentage points and 4.6 percentage points, respectively, compared to previous forecasts. In particular, capital investment is expected to grow at its largest rate since 2021 (+10.2%), marking a five-year high.
This trend is not unique to KDI's observations. Moody's also recently revised its growth forecast for South Korea this year upward from 2.8% to 3.5% in a recent report.
Moody's adjusted its growth forecast upward, noting that South Korea's merchandise exports surged by 51% year-on-year from January to July this year. Moody's particularly stated, "Semiconductor demand continues, and there are limited companies capable of realistically replacing South Korea's advanced memory suppliers," predicting that this semiconductor upcycle is likely to remain strong at least until mid-2027.
The Bank of Korea has also signaled a significant upward revision to its growth forecast. Bank of Korea Governor Shin Hyun-song stated in a press conference last month, "This year's growth forecast is expected to significantly exceed the 2.6% projected in May." The Bank of Korea will release its revised economic outlook at the Monetary Policy Board meeting on the 27th, which will decide the base rate.
However, some voices are raising concerns about the growth trend being overly concentrated on semiconductors. Because the warmth of growth is focused on the semiconductor industry, which has a low employment generation effect, it is not sufficiently spreading to improve the felt economy.
In fact, KDI significantly lowered its forecast for this year's increase in the number of employed persons from 170,000 to 110,000, despite the economic boom. This is because the semiconductor sector has a low employment generation effect, and companies in other industries are taking a conservative stance on hiring new personnel due to uncertainties related to the Middle East war.
Kim Mi-ru, KDI Macro-Finance Jeong Chaek-yeon-gu (Director), stated, "While our economy is showing high growth driven by the semiconductor supercycle fueled by expanding global AI (artificial intelligence) investment, these gains have not yet sufficiently spread to household incomes such as private consumption or employment." She added, "Despite a significant increase in real gross domestic income (GDI), the real wage growth rate is not high compared to the 10th-year average, and business conditions in manufacturing excluding semiconductors are not very bright. Therefore, high economic growth rates may differ from the felt economy."
in ECONOMY
