South Korea’s AI-led semiconductor boom has yet to generate a tangible spillover into the broader economy, Nomura’s chief economist said, even as concerns about the won and financial stability heighten the possibility of a Bank of Korea (BOK) interest rate hike next month.Speaking at a Korean stocks and economics briefing in Seoul, Park Jeong-woo, Nomura’s chief economist for South Korea and Taiwan, said the key issue was not whether semiconductor stocks were performing well, but whether this strength was translating into broader economic activity, according to the Korea Herald, as quoted by ANI.“No one can deny the power of semiconductors, and the stock market has been strong on the back of that,” Park said.
“The key question is whether this strength trickles down to the rest of the economy.”Park said the BOK appears to have changed its tune since May, focusing less on a K-shaped recovery and more on expected impacts from the semiconductor development cycle.However, Nomura remains unconvinced that the benefits have become widespread.“So far, the evidence that the warmth is spilling over into domestic demand is not that strong,” he said.
The comments come as South Korea continues to benefit from strong global demand for AI-related chips, a trend that has boosted semiconductor exports and lifted stock markets. However, according to a Korea Herald report cited by ANI, Nomura Bank believes the broader economy has yet to experience the full benefits of the boom.Semiconductor exports were largely driven by price effects, while shipment volume growth was not exceptional by historical standards, Park said.
As a result, the sector’s contribution to GDP may be less significant than headline export figures suggest.Business investment has been supported by the capital spending cycle of chipmakers and is likely to remain strong through the third quarter, he said. But the impact may fade later in the year, while construction activity remains under pressure from rising interest rates and rising construction costs.Consumption data also presents a mixed picture.Park noted that spending on department store cards rose by 17%, far outpacing the growth in overall card spending of about 2.5%, although most of the increase appears to be concentrated in luxury purchases. Meanwhile, domestic auto sales fell by about 8% in May.“The evidence that the semiconductor and stock market boom is moving to consumption is still not very strong,” Park said, quoted by ANI.Nomura expects South Korea’s economy to grow by 2.4% this year, lower than the Bank of Korea’s forecast of 2.6% but higher than the country’s estimated potential growth rate of less than 2%.“2.4% is not a weak number,” Park said. “But given the high expectations and the limited speed at which strength in domestic demand spreads, we believe the growth rate is appropriate for this year.”Regarding inflation, Park said Nomura sees current price pressures as primarily supply-driven rather than a result of strong demand.He said that employment and wage indicators are not yet showing the broad inflationary pressures we witnessed during the 2021-2023 period, adding that inflation may reach its peak around August or September.Despite this assessment, Nomura expects the Bank of Korea to raise interest rates in July and eventually reach 3.25%.Park said the expected move would be driven less by growth and inflation concerns and more by financial stability considerations, especially the won and the housing market.“A 25 basis point rate hike would not change the direction of the exchange rate,” he said, adding that a much larger increase would be needed to significantly impact the currency, although such a move seemed unlikely given the burden it would place on households and businesses.
