Outlook released in semiannual report

Full-year real GDP growth forecast at 3.0%

Researchers work at the semiconductor fabrication facility of the National NanoFab Center in Yuseong-gu, Daejeon. [Yonhap]
Researchers work at the semiconductor fabrication facility of the National NanoFab Center in Yuseong-gu, Daejeon. [Yonhap]

Shinhan Financial Group said the benefits of the semiconductor boom are becoming increasingly concentrated among high-income earners, and warned that the gap between headline economic growth and everyday economic sentiment will persist for now.

In a semiannual report released Aug. 14, Shinhan Financial Group forecast full-year real GDP growth of 3.0% this year, driven by the semiconductor sector's strong performance. The group said private consumption is expected to continue a gradual recovery, supported by improved income conditions tied to the semiconductor boom and rising asset prices. Equipment investment is also projected to improve, led by spending on three major mega-projects.

Construction investment, however, is unlikely to stage a full recovery, the report said, as cost burdens in the private housing sector persist even as public infrastructure spending bottoms out. The group also flagged several risks that could cloud the growth outlook: uncertainty over whether the AI investment cycle will be sustained, the limited trickle-down effect of the semiconductor boom, rising oil prices stemming from Middle East tensions, and domestic demand constraints from a higher exchange rate and rising interest rates.

The recovery's warmth is unlikely to spread across the broader economy, the group assessed. The production and export gap between semiconductor and non-semiconductor industries continues to widen, and construction investment fell 0.2 percent from the previous quarter due to weakness in civil engineering. With export gains concentrated in a handful of industries, growth remains narrow across sectors.

A similar pattern is playing out in domestic demand. Second-quarter private consumption rose 0.4 percent from the previous quarter, with spending up across both goods — including home appliances — and services such as dining and accommodation. Yet the income gains and asset price appreciation driven by the semiconductor boom have disproportionately benefited higher-income households, and rising interest burdens are adding further pressure, limiting how widely the consumption recovery can spread.

Employment is also failing to keep pace with headline growth. The number of employed people in June rose by 63,000 from a year earlier, with the employment rate reaching 63.4 percent, but weakness in the construction sector and deteriorating job sentiment among youth continued. The spillover from the semiconductor industry's strong export growth into quality job creation has also been limited.

On the domestic banking industry, Shinhan Financial Group said institutions are "strengthening risk management in response to credit risks stemming from prolonged low growth, global economic uncertainty and the accumulation of household debt," adding that "tighter financial regulations, including those on household lending, are slowing asset growth."

Banks are also "focusing on finding new revenue models through pension market expansion, smart financial services and a push into global markets, alongside efforts to maintain financial soundness," the group added.


forest@heraldcorp.com