South Korea's economy is projected to achieve a growth rate of 3.2%, primarily driven by semiconductor exports and facility investments. However, a recent study by a national research institute indicates that this robust growth is not translating into improvements in domestic consumption and employment.
The Korea Development Institute (KDI) released its revised economic outlook on August 19, stating, "Economic growth is concentrated in the semiconductor sector, which has a low employment generation effect, preventing high growth from leading to improvements in private consumption and employment conditions."
The upward revision in growth is largely attributed to semiconductor exports and facility investments. While real total income has surged, the benefits of this economic growth have not spread widely, as income gains are concentrated in the semiconductor sector. Additionally, the growth rate of real wages remains low, resulting in only modest improvements in private consumption.
Kim Mi-ru, head of the KDI's Macroeconomic and Financial Policy Research Division, noted, "The companies producing semiconductors are large corporations, while most citizens work in small and medium-sized enterprises or the self-employed sector. The economic conditions in those areas are not favorable, so the overall economic sentiment is unlikely to keep pace with the growth rate."
While exports and facility investments continue to soar, construction investment remains sluggish. Although there have been improvements in non-residential construction, including semiconductor factories, the overall construction investment has been dragged down by a stagnant housing market in rural areas.
Moreover, employment indicators have shown disappointing results. Job losses persist in the construction and manufacturing sectors, and conditions for youth employment have worsened. The number of employed individuals is expected to increase by only 110,000 this year, a downward adjustment of 60,000 from previous forecasts.
Factors contributing to this situation include the concentration of growth and uncertainties stemming from the Middle East conflict. The semiconductor sector employs a small portion of the overall workforce, limiting its positive impact on total employment. Additionally, the effects of the Middle East conflict in the first half of the year have led companies to reduce new hiring, further constraining overall job growth.
Kim added, "The focus of growth is on the semiconductor sector, which has a relatively low employment generation effect, and despite a significant increase in real total income, the growth rate of real wages is not high compared to the average over the past decade. The ongoing slump in the construction industry, along with a lackluster outlook for manufacturing outside of semiconductors, suggests that high economic growth rates may not align with actual economic sentiment."
Given the South Korean economy's reliance on semiconductors, future changes in the semiconductor market could significantly impact the overall macroeconomy. Concerns over the profitability of AI investments may reduce global demand for AI, and intensified competition with other semiconductor-producing countries could lead to a decline in the global market share of domestic semiconductor firms, resulting in a slowdown in growth.
Kim Ji-yeon, head of the KDI's Economic Outlook Division, stated, "Once investment competition reaches a certain level, it will be difficult to sustain massive investments, and semiconductor demand is expected to slow compared to current levels. Additionally, uncertainties surrounding U.S. tariff policies, geopolitical conflicts in the Middle East, and high volatility in the stock market are also identified as risk factors."
* This article has been translated by AI.
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