Exports and facility investment continue strong growth led by semiconductors

AI-linked production in metals, electrical and machinery sectors also solid

Real wage growth at 0.3% in first half, limiting household purchasing power

Retail sales fall 0.8% in July; KDI says economic gains not reaching households

Pyeongtaek Port [The Herald Business DB]
Pyeongtaek Port [The Herald Business DB]

Exports and investment are growing rapidly on the back of artificial intelligence and semiconductors, but the economic recovery has yet to reach households sufficiently, a state-run research institute said. Corporate AI-related investment is lifting production and exports, while sluggish real wage growth is keeping consumer spending to a relatively modest recovery.

The Korea Development Institute said in its September economic trends report, released Monday, that "the Korean economy is maintaining an improvement trend centered on sectors closely tied to AI-related investment."

Semiconductors remain the primary engine of the recovery. Exports and facility investment continue to post strong gains led by semiconductors, while production in AI-linked industries — including metal processing, electrical equipment and machinery — is also holding up relatively well.

Exports in August surged 68.7 percent year-on-year, driven by information and communications technology products. The facility investment growth rate also expanded, rising from 22.5 percent in June to 24.9 percent in July. Investment in machinery climbed 21.3 percent, sustaining strong momentum in AI infrastructure-related sectors such as semiconductor manufacturing equipment.

Production also maintained its upward trend. Overall industrial output growth came in at 3.1 percent in July, down from 4.4 percent the previous month but still above the second-quarter average of 2.9 percent.

The concern is that the economic improvement originating in corporate investment and exports has not translated sufficiently into greater household purchasing power.

KDI said "the pace of consumption improvement remains gradual, as the economic recovery has not spread adequately to household incomes broadly." It noted that real wage growth for all workers in the first half of this year was just 0.3 percent, constraining the recovery in household purchasing power.

The retail sales index fell 0.8 percent year-on-year in July. Durable goods sales swung from a 10.3 percent gain the previous month to a 4.1 percent decline, dragging down overall retail figures.

By category, passenger car sales reversed from growth of 11.9 percent to a decline of 2.5 percent, while home appliances swung from a 13.0 percent gain to a 0.8 percent drop. Sales of telecommunications devices and computers fell sharply, from growth of 14.7 percent to a decline of 14.2 percent.

KDI attributed the drop in passenger car sales partly to the expiration of an individual consumption tax cut and the end of promotional campaigns by major automakers. The steep decline in telecommunications devices and computers reflected a base effect from mobile carriers' waiver of number-portability penalties in the same month last year.

Sales of semi-durable goods also edged down 0.2 percent, with KDI citing a high base from consumer coupon distributions in the same month last year.

Even smoothing out monthly volatility, the pace of consumption recovery remains slow. Average retail sales for June and July rose 1.5 percent from a year earlier — roughly half the first-quarter average growth rate of 3.2 percent.

Services consumption also slowed. The services sector output growth rate fell to 3.5 percent in July from 5.4 percent the previous month. Growth in wholesale and retail trade, which closely tracks consumer spending, shrank sharply from 4.1 percent to 0.1 percent, while accommodation and food services swung from growth of 1.1 percent to a decline of 1.0 percent.

Despite strong exports and investment, external uncertainty remains a risk factor. KDI said "uncertainty surrounding instability in the Middle East and US trade policy remains elevated."

Ultimately, the recent economic picture is one of simultaneous improvement in the corporate sector — led by AI and semiconductors — and a sluggish recovery in household consumption. How quickly the strong gains in exports and facility investment feed through to wages and household incomes will likely determine the pace of any domestic demand recovery going forward.


fact0514@heraldcorp.com