The Hyundai Economic Research Institute has raised concerns about the South Korean economy, noting that while the semiconductor sector is thriving, domestic consumption is declining.
In August, exports surged by 68.7% compared to the previous year, driven by strong semiconductor sales. The semiconductor sector's share of total exports jumped from 25.9% to 47.5%. However, retail sales in July fell by 2.4% from the previous month. The growth rate of household income, after government support was withdrawn, worsened from -0.3% in the first quarter to -1.3% in the second quarter.
The youth unemployment rate rose to 6.8%, an increase of 1.3 percentage points from a year ago, with the number of employed young people declining for the 45th consecutive month. Despite record semiconductor exports, household sentiment has soured, illustrating a K-shaped polarization in the economy. This situation is reminiscent of past experiences where the boom in a specific industry obscured the overall economic picture, often with disappointing outcomes.
The most painful precedent occurred between 1994 and 1995, when the three major semiconductor companies recorded an average growth rate of 98%. Manufacturing capacity utilization reached a historic high of 85.4%, and the unemployment rate fell to 1.9%. Many hailed it as the greatest boom since the founding of the nation.
A Samsung Electronics official confidently stated that supply would not be able to keep up with demand until the early 2000s. However, the market shifted unexpectedly. By late 1995, DRAM prices began to decline, plummeting by 51% in 1996 and 65% in 1997. Currency and stock prices also fluctuated dramatically, culminating in a financial crisis by the end of that year.
At the time, Kang Man-soo, then Vice Minister of Finance and Economy, later reflected that the semiconductor boom had blinded them to the downturn in other sectors. They were intoxicated by the numbers of the boom, while warning signs accumulated unnoticed.
The second case mirrors the current situation. Recently, the top 10 companies in the semiconductor supercycle accounted for over 50% of exports for the first time. In contrast, exports from medium and small enterprises remained around 10%. The employment multiplier for the semiconductor industry is two jobs per 1 billion won, while the manufacturing average is six jobs, and the automotive and shipbuilding sectors generate seven jobs.
Even with booming semiconductor sales and rising exports, job creation remains stagnant. Most of the gains in the KOSPI index are concentrated in Samsung Electronics and SK Hynix. Individual investors are heavily borrowing to invest in these two companies, creating a distorted perception of the export boom that is spilling over into the asset market.
Japan is experiencing a similar situation, with its current account surplus and overseas dividend income reaching record highs. However, household consumption has declined for four consecutive months, with 55% of respondents indicating they feel financially strained. This disparity between corporate profits and household finances exemplifies K-shaped polarization.
All three cases share a common message: the boom in a specific industry does not guarantee the overall health of the economy. Ignoring this gap can exacerbate asset market concentration. If household debt burdens are factored in, future shocks could be even more severe.
South Korea currently faces the risks highlighted in these three cases: reliance on the semiconductor sector, asset market concentration, and stagnation in household purchasing power. This complicates monetary policy, making it difficult to tighten measures aimed at controlling inflation and debt. A nuanced approach, including sector-specific responses like adjusting fuel taxes and supporting vulnerable groups and small businesses, is necessary. Policies must be carefully tailored to each industry to facilitate a soft landing.
The boom of 1995 serves as a reminder that when indicators look good, it is crucial to examine the underlying issues. This should not be dismissed as overly cautious; rather, it calls for heightened vigilance.
* This article has been translated by AI.
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