South Korea's economy is showing signs of gradual improvement, driven 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 August 8, KDI noted that while semiconductor production had previously surged, it is now stabilizing, leading to a slight overall decline in manufacturing output. A KDI official stated, "Exports have continued to rise significantly, particularly in ICT products like semiconductors, thanks to strong demand related to AI. Investment in the semiconductor sector also remains healthy." The official added that production in the service sector, particularly in finance, insurance, and professional scientific services, has been robust, supporting overall industrial production growth.
In May, total industrial production maintained a similar growth rate to the previous month, decreasing slightly from 2.4% to 2.3%. 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 significant drop in semiconductor production, which fell from 13.3% to 1.5%. Additionally, automotive production decreased by 5.2% due to a fire at a parts supplier, while petroleum refining and chemical products also reported declines of 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 from 1.6% to 1.7% in May. This increase is attributed to government support policies that have boosted both durable and non-durable goods. However, high oil prices and exchange rate fluctuations continue to pose inflationary pressures, raising concerns about the sustainability of consumer spending growth.
Investment in facilities increased significantly from 7.9% to 9.7% in May, driven by strong semiconductor performance. Notably, investment in machinery, particularly for semiconductor manufacturing equipment, surged by 75.9%, contributing to the overall increase in facility investment. However, other sectors, such as general industrial machinery and electrical and electronic equipment, showed 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 fell from -5.3% to -1.9%, continuing the downward trend due to ongoing weakness in residential construction.
On a positive note, exports continue to rise, particularly in ICT products. Last month, exports surged by 70.9%, with semiconductors increasing by 179.6% and computers by 281.6%. Imports also rose by 30.1%, driven by an increase in energy resources by 41.8%, while semiconductor equipment imports grew by 41.3%.
* This article has been translated by AI.
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