Major domestic and international economic institutions have raised their forecasts for South Korea's economic growth rate. However, a significant gap remains between macroeconomic indicators and the real economy as experienced by ordinary citizens. Most sectors, except for semiconductors, continue to struggle, raising concerns about economic polarization.
This phenomenon is attributed to what is termed the "semiconductor illusion effect." While the semiconductor export boom has boosted exports and growth rates, the real economy continues to lag due to high inflation and exchange rates.
According to the Ministry of Economy and Finance, the Organization for Economic Cooperation and Development (OECD) has revised its forecast for South Korea's economic growth rate upward by 0.9 percentage points to 2.6% for this year. Growth is expected to continue in the second half of the year, primarily driven by semiconductors, although the polarization between semiconductor and non-semiconductor manufacturing is expected to deepen.
A recent report from the National Assembly Budget Office indicates that the production capacity index for the semiconductor sector has surged by 80 percentage points over the past five years. This increase is attributed to the AI boom and the recovery of global information technology demand, leading to significant investments and production increases.
In contrast, the production capacity index for non-semiconductor manufacturing has declined by 14 percentage points during the same period. This decline reflects the weakening fundamentals of traditional manufacturing sectors, such as steel, petrochemicals, and automotive parts, which have been the backbone of the South Korean economy.
A representative from the Budget Office stated, "Due to global supply excess, the operating rates for steel and petrochemical sectors have been declining for several years. High inflation is also constraining consumption, leading to negative growth in the domestic service sector."
The inability of the semiconductor boom to spread to other industries and the overall economy is attributed to external uncertainties. The prolonged conflict in the Middle East, coupled with geopolitical risks, has kept international oil prices elevated. Given South Korea's high dependence on energy imports and its export-oriented economic structure, high oil prices contribute to rising production costs and inflationary pressures.
The high exchange rate, hovering around 1,500 won per dollar, also poses challenges. In the past, a rising exchange rate was seen as enhancing the price competitiveness of export companies. However, current analyses suggest that it primarily exacerbates the costs of imported raw materials, negatively impacting the profitability of domestic firms.
Rising international oil prices and exchange rates lead to increased import prices and production costs. This, in turn, triggers price hikes for products and raises living costs. The increase in living costs results in a decline in real household income, ultimately leading to a vicious cycle of reduced consumption.
This trend is evident in various indicators. According to the National Data Agency's industrial activity trends for April, the retail sales index, which reflects consumption, fell by 3.6% compared to the previous month, marking the largest decline since February 2024. Equipment investment also decreased by 3.6%, and the construction performance index, which indicates domestic construction activity, dropped by 1.4%.
Some experts warn that excessive reliance on semiconductors for national economic growth could lower South Korea's potential growth rate. If the global AI boom ends or the semiconductor market enters a downturn, there may not be sufficient industrial foundations to replace or supplement it.
A representative from the Budget Office emphasized, "The semiconductor industry has limited spillover effects, so if semiconductor demand slows, it could exert significant downward pressure on the overall manufacturing sector. Policies are needed to diversify away from semiconductor dependence and strengthen the resilience of other manufacturing and domestic-based industries."
* This article has been translated by AI.
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