AI Tailwinds Drive 'Record-High' Exports, but Domestic Demand Remains in a 'Deep Freeze'... Uneven Recovery Continues
Triple-digit surge in semiconductor and computer exports
Retail sales continue to contract
Inflationary pressures remain elevated
South Korea's economy has continued to improve, supported by strong exports of artificial intelligence (AI)-related products and robust facility investment. However, the benefits have not spread across households, and domestic demand remains weak.
In its October issue of Economic Trends, released on October 12, the Korea Development Institute (KDI) said that global demand for investment in AI infrastructure remained solid, while weak underlying wage growth was limiting the recovery in household purchasing power.
According to KDI, exports and investment are both performing strongly, led by advanced industries such as semiconductors. Exports in September surged 83.5% year on year, marking an exceptional increase. On a daily average basis, semiconductor exports rose 304.9%, while computer exports posted explosive growth of 497.6%. Exports of steel products and nonferrous metals also rose 15.3% and 49.1%, respectively, supporting the overall strength amid expanding global demand for AI infrastructure investment.
Facility investment has also continued to grow rapidly, led by machinery. It rose 16.1% in August, with investment in semiconductor manufacturing equipment surging 107.7% and driving overall investment. Investment in general industrial machinery and electrical and electronic equipment also maintained growth rates in the double digits, indicating broad improvement in machinery investment beyond semiconductors.
In contrast to the export boom, the domestic market remains in a deep slump. The retail sales index fell 0.3% in August, following a 1.0% decline in July, continuing its contraction. Passenger car sales plunged 19.2% as temporary production disruptions caused by strikes at major automakers coincided with summer vacations. Real wages rose just 0.2% from January through July, leaving household purchasing power yet to recover.
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Inflationary pressures are also cited as a major obstacle to a recovery in domestic demand. Consumer prices rose 2.9% in September, but excluding the base effect related to telecommunications fees in the previous month, the underlying inflation rate actually increased to 3.1%. Meanwhile, geopolitical risks in the Middle East have flared up again, pushing Dubai crude prices to $113.7 per barrel in September and adding upward pressure to prices of related items, including international airfares. With supply-side inflationary pressures, including a sharp rise in global oil prices and higher production costs for major IT devices, likely to persist, everyday economic conditions for ordinary people are expected to remain difficult for the time being.
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