The semiconductor industry is experiencing unprecedented growth, yet this prosperity has not translated into broader benefits for the South Korean economy, according to a report by Nomura Securities. On June 12, the firm stated, "So far, the trickle-down effect from the semiconductor boom has not been strongly evident."
Nomura held a media briefing on the South Korean economy and stock market in Seoul's Jung-gu Finance Center. Economist Park Jung-woo expressed skepticism about the existence of a trickle-down effect from the semiconductor sector, noting, "We need to observe how much will flow into the stock market and government finances, but so far, it is difficult to feel a strong impact." He pointed out the lack of concrete economic indicators to support this claim.
Investment trends also reflect a lack of trickle-down benefits from the semiconductor sector. Capital expenditures (CAPEX) are heavily reliant on the two major semiconductor companies, Samsung Electronics and SK Hynix. Investment in other industries has remained stagnant, and the construction sector faces a bleak outlook due to rising costs from the Middle East conflict and anticipated interest rate hikes in the second half of the year. Park predicted, "The trickle-down effect in terms of investment will last only until the third quarter, led by semiconductors, after which the impact will likely diminish."
Consumer spending is also in a negative state. Domestic passenger car sales have declined for two consecutive months in April and May. Consumption data reveals a stark polarization: while department store credit card approvals surged by 17.1% last month, overall credit card approvals increased by only 7.0%, indicating that luxury spending is concentrated among a small segment of the population and not spreading to general households. Park noted, "Only about 2% of respondents said they would spend extra money if they had it."
Inflation is expected to peak in August or September due to supply-side factors, after which the rate of increase is projected to slow. Park stated, "The Bank of Korea believes that the trickle-down effect from semiconductors is strong and that it will lead to future demand-side inflationary pressures, but currently, employment is not increasing. Many people are opting to put bonuses into retirement funds rather than spending them, so wage-related inflationary pressures are not emerging."
Regarding monetary policy, a rate hike in July is considered almost certain. Bank of Korea Governor Shin Hyun-song also indicated, "We will raise rates in a timely manner." Nomura forecasts that the current base rate of 2.5% will increase three times this year, reaching 3.25%. The firm clarified that scenarios involving a 'big step' (0.5 percentage point increase) or consecutive hikes in July and August are not part of the basic outlook. They estimate that three rate hikes would increase the interest burden on households and businesses by over 20 trillion won, but they believe there is sufficient fiscal capacity to offset this.
Nomura also predicts that the won-dollar exchange rate will be 1,470 won by the end of this year and 1,420 won next year, expecting it to remain in the 1500s through the third quarter. They believe that even if the Bank of Korea raises interest rates, the exchange rate is unlikely to change significantly or drop to the 1400s in the short term.
The monetary policy of the U.S. Federal Reserve is seen as a variable. Park stated, "If the Fed returns to a tightening stance, the pressure for a weaker won will increase due to a stronger dollar. The exchange rate is a supply-demand issue rather than a fundamental one, and raising the base rate could slightly alleviate upward pressure."
* This article has been translated by AI.
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