Economic outlook remains uncertain despite strong chip exports: KDI

SEOUL, August 10 (AJP) - Exports of semiconductors, driven by the artificial intelligence (AI)-fueled memory chip boom, are boosting South Korea's economic recovery, but uncertainty at home and abroad remains as high prices and slowing employment continue to cloud the outlook, a state-run think tank said.

In its economic outlook released on Monday, the Korea Development Institute said, "Exports and facility investment posted strong gains, supported in part by robust demand for semiconductors, while consumption also improved as demand for durable goods picked up."

It said overall industrial output grew at a relatively solid pace, with services maintaining strong momentum and manufacturing showing a recovery. Manufacturing output rose 5.8 percent in May, with semiconductors, automobiles, machinery and electrical equipment all posting gains. Services output also continued to rise increasing 5.3 percent, led by finance and insurance and professional, scientific and technical services.

Consumption continued to improve in June, led by stronger sales of durable goods. Retail sales rose sharply to 4.2 percent, up from 1.5 percent in the previous month. Passenger car sales increased 12.2 percent, helping lift sales of durable goods by 10.9 percent. Sales of semi-durable and nondurable goods also rose 2.2 percent and 1.7 percent, respectively.

Facility investment jumped 21.7 percent in June as semiconductor-related investment remained strong, more than double the 9.7 percent growth recorded in the previous month, while construction investment for housing and residential complexes remained weak.

An index gauging consumer sentiment also edged up to 106.8 last month from 106.6 a month earlier, remaining above its long-term average. A score above 100 indicates that consumers are generally optimistic about the economy.

Although exports continued to grow strongly on rising AI-related demand, surging 62.8 percent in July, the broader economic outlook, however, remains uncertain.

"Uncertainty persists at home and abroad as U.S. tariff measures continue to shift and the conflict in the Middle East lingers, while inflation stays high and employment conditions weaken," it said.

AJP Takeaways:
- AI-driven semiconductor demand is supporting South Korea's recovery, with exports surging 62.8 percent in July as memory chip demand remained strong.
- Industrial production showed a broad recovery in May, with manufacturing output rising 5.8 percent and services output increasing 5.3 percent.
- Consumer spending continued to improve in June, with retail sales rising 4.2 percent and durable-goods sales increasing 10.9 percent, helped by a 12.2 percent increase in passenger car sales.
- Facility investment jumped 21.7 percent in June, more than double the 9.7 percent increase in May, as semiconductor-related investment remained strong, although construction investment stayed weak.
- The economic outlook remains uncertain despite stronger exports and domestic demand, as shifting U.S. tariff measures, the lingering Middle East conflict, high inflation and weakening employment conditions pose risks.