South Korea's economy is showing a modest improvement, supported by strong semiconductor exports and a robust service sector, according to a report from the Korea Development Institute (KDI). However, the manufacturing sector is experiencing production adjustments, particularly in industries such as automotive and petroleum refining.
In its July economic trends report released on July 8, KDI noted that while semiconductor production had previously seen significant growth, it is now stabilizing, leading to a slight overall decrease in manufacturing output. Other sectors are also showing weak performance.
A KDI official stated, "Exports have continued to rise significantly, driven by strong demand for AI-related products, particularly in the semiconductor and ICT sectors. Investment related to semiconductors is also maintaining a positive trend. The service sector's production, especially in finance, insurance, and professional scientific and technical services, continues to support the overall increase in industrial production."
In May, total industrial production remained stable at a growth rate of 2.3%, similar to the previous month, bolstered by the service sector's performance. Notably, service sector production increased by 4.9%, with finance and insurance growing by 10.4% and professional, scientific, and technical services rising by 17.5%.
Conversely, manufacturing output saw a decline, with semiconductor production dropping from 13.3% growth to just 1.5%. Additionally, automotive production fell by 5.2% due to a fire at a parts supplier, while petroleum refining and chemical products also reported poor performance, declining by 14.7% and 2.8%, respectively, due to unstable crude oil supply.
Consumer spending showed signs of gradual improvement, with the retail sales index rising slightly from 1.6% to 1.7% in May. This increase is attributed to government support policies that have boosted sales of semi-durable and non-durable goods. However, high oil prices and exchange rate fluctuations are contributing to inflationary pressures, raising concerns about the sustainability of consumer spending improvements.
In May, facility investment surged from 7.9% to 9.7%, driven by strong semiconductor performance. Investment in machinery, particularly for semiconductor manufacturing equipment, saw a remarkable increase of 75.9%, propelling overall facility investment growth. However, other sectors, such as general industrial machinery and electrical and electronic equipment, experienced declines of 3.0% and 1.2%, respectively.
Construction investment remains sluggish, particularly in residential building, which has struggled to recover from negative growth. In May, construction output decreased from -5.3% to -1.9%, continuing the trend of poor performance in residential construction.
On a positive note, exports are continuing to rise, particularly in the information and communication technology (ICT) sector. Last month, exports surged by 70.9%, driven by significant increases in semiconductors (179.6%) and computers (281.6%). Imports also rose by 30.1%, with energy resources increasing by 41.8%, while semiconductor equipment accounted for a 41.3% rise in other categories.
* This article has been translated by AI.
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