August exports jump 68.7%, with semiconductors making up 47.5% of total

'Semiconductor dollars' boost won, easing import-price pressure

Bank of Korea raises rates for second straight month, leaves door open to more

Hyundai Research Institute warns over-tightening could delay consumption, jobs recovery

Export containers stacked at a port in Busan [Yonhap]
Export containers stacked at a port in Busan [Yonhap]

Semiconductors are flying and the won is strengthening, but household spending remains stubbornly closed. While dollars flowing in from chip exports are driving won appreciation and lifting GDP growth, consumer spending and youth employment are moving in the opposite direction. With the Bank of Korea raising its benchmark interest rate for two consecutive months to rein in inflation and household debt — and leaving the door open to further hikes — warnings are growing that a K-shaped divide between export conglomerates and domestic households could become entrenched.

According to a report released Sunday by the Hyundai Research Institute, titled "Time to Watch for the Risk of K-shaped Polarization Becoming Entrenched Due to Policy Over-response," real GDP grew 0.6 percent in the second quarter from the previous quarter. That was slower than the 1.8 percent expansion in the first quarter, but exports rose 1.4 percent and continued to underpin growth.

Semiconductors are at the heart of the export boom. August exports jumped 68.7 percent from a year earlier, the report said. Semiconductors' share of total exports soared from 25.9 percent in August last year to about 47.5 percent in August this year — meaning roughly one in every two exported goods is now a chip.

The semiconductor boom is also reshaping the foreign exchange market. A steady stream of dollar-to-won conversions by chipmakers repatriating export earnings has supported won strength. Combined with a broader global dollar weakening, the won-dollar rate fell to 1,345.0 won in overnight trading on Friday — its lowest level since October 2024 — before closing the daytime session at 1,350.4 won. Market participants attribute the move to a weaker dollar, improved foreign capital flows and the added supply of "semiconductor dollars."

A stronger won lowers the price of imported oil and raw materials, easing inflationary pressure and reducing the case for further rate hikes. At the same time, however, semiconductor-led high growth, lingering price instability, and rising Greater Seoul home prices and household lending are all pushing the Bank of Korea toward continued tightening.

The Bank of Korea's Monetary Policy Board raised the benchmark interest rate from 2.50 percent to 2.75 percent in July, then lifted it again to 3.00 percent in August — two consecutive increases. The central bank said it acted because growth momentum was strengthening, led by exports and investment; because inflation was expected to remain above its target for a considerable period; and because it needed to address rising housing prices and household debt in the Greater Seoul area. It said it would continue to assess inflation, economic conditions and financial stability in determining the timing and pace of any additional hikes.

A pedestrian walks past the logo of luxury brand Chanel at a department store in Seoul. [Yonhap]
A pedestrian walks past the logo of luxury brand Chanel at a department store in Seoul. [Yonhap]

The problem is that the warmth generated by exports is not reaching households. The retail sales index fell 2.4 percent in July from the previous month. Growth in durable goods consumption swung from a 10.3 percent gain in June to a 4.1 percent decline in July.

Total real income, including government transfers, widened from a 0.4 percent increase in the first quarter to 1.5 percent in the second. But real income growth excluding public transfer payments worsened over the same period, from minus 0.3 percent to minus 1.3 percent — meaning the purchasing power that households generate through their own economic activity has actually weakened.

The labor market tells a similar story of divergence. The youth unemployment rate stood at 6.8 percent in July, up 1.3 percentage points from a year earlier. The number of employed young people fell for the 45th consecutive month since November 2022. Even as expansion signals strengthen among large semiconductor exporters, the economic reality felt by small and medium-sized domestic businesses and young workers remains bleak.

The Hyundai Research Institute said that if monetary policy responds excessively to inflation and household debt under these conditions, it risks deepening the K-shaped divide. With household debt already elevated, faster rate increases would raise interest burdens, suppress consumption, and — given the lagged effects of tightening — could trigger a credit crunch and a domestic demand slump.

The institute recommended pairing monetary policy with targeted microeconomic measures addressing specific drivers of inflation, such as cuts to fuel taxes, rather than relying on rate hikes alone to achieve price stability. It also said fiscal space that has been secured should be directed toward strengthening medium- to long-term growth foundations — including energy, supply chains and logistics — and toward supporting small and medium-sized enterprises and vulnerable groups.


attom@heraldcorp.com