Nomura says chip boom has yet to lift Korea's broader economy
Seoul, June 13
The artificial intelligence-led semiconductor boom has yet to show a strong spillover into South Korea's broader economy, even as currency and financial stability concerns make a Bank of Korea rate hike in July increasingly likely, Nomura's senior economist said Friday.
According to a report by The Korea Herald, Park Jeong-woo, South Korea and Taiwan senior economist at Nomura, said at the brokerage's Korea Equities & Economy Media Briefing in Seoul that the key question for the economy is not whether chips and stocks are strong, but whether that strength is feeding into domestic demand.
"No one can deny the strength in semiconductors, and the stock market has been strong on the back of that," Park said. "The key question is whether that strength is flowing into the rest of the economy."
Park said the central bank appears to have shifted its tone since May, putting less emphasis on the K-shaped recovery and more on the expected trickle-down effect from the semiconductor upcycle. But Nomura remains unconvinced that the effect has become broad-based, the report added.
"So far, the evidence that the warmth is spreading to domestic demand is not that strong," he said.
The direct contribution from chips to gross domestic product also looks more limited than headline export figures suggest, Park said. Semiconductor exports have been driven heavily by price effects, while shipment volume growth has not been exceptional compared with historical averages.
Business investment has been supported by chipmakers' capital expenditure cycle and is likely to remain strong through the third quarter, he said. But the effect could fade afterward, while construction remains weak due to higher building costs and elevated interest rates.
Consumption also shows a mixed picture. Park said department store card spending rose 17 per cent, far outpacing overall card spending growth of about 2.5 per cent, but the increase appears concentrated in luxury purchases. Domestic auto sales fell about 8 percent in May, pointing to limited signs of broader consumption strength.
"The evidence that the semiconductor and stock market boom is moving into consumption is still not very strong," Park said.
Nomura expects Korea's economy to grow 2.4 per cent this year, below the Bank of Korea's 2.6 per cent forecast but still above the country's estimated potential growth rate of less than 2 per cent.
"Two-point-four per cent is not a weak number," Park said. "But given the higher expectations and the limited speed at which the strength is spreading into domestic demand, we think it is an appropriate growth rate for this year."
On inflation, Park said Nomura views the current pressure more as a supply shock than demand-driven inflation. Employment and wage data do not yet show the kind of broad pressure seen in 2021 to 2023, he said, adding that inflation could peak around August or September.
Still, he said the BOK is likely to raise the policy rate in July, with Nomura expecting it to eventually reach 3.25 per cent. The move, he said, would be driven less by growth and inflation alone than by financial stability concerns, including the won and the housing market.
Park said the won is unlikely to strengthen to the 1,400-per-dollar level in the near term. Nomura's foreign exchange team expects the won-dollar rate to be at 1,470 by year-end and 1,420 in 2027, but upward pressure is likely to persist for now.
"A 25-basis-point hike would not change the direction of the exchange rate," he said, adding that, while a much larger move would be needed to have a decisive impact on the currency, such a scenario looks unlikely, given the burden higher rates would place on households and companies.
— ANI
Reader Comments
This is so relevant even for India! We're all excited about chip manufacturing and PLI schemes, but the real test is whether it creates jobs for the common person—auto workers, construction laborers, small shop owners. Nomura's point about luxury spending vs. overall consumption is spot on. Our malls are full but kirana stores are struggling. 😔
Interesting analysis but I think they're being too cautious. The chip boom is creating a lot of high-value jobs and tax revenue—that will eventually trickle down. In India too, we saw the IT boom eventually lead to real estate boom and consumption growth. Give it time, the spillover is always delayed. But yes, the government needs to actively manage it with infrastructure spending.
As someone who tracks emerging markets, this is a textbook K-shaped recovery. The wealthy (semiconductor investors, tech workers) are doing great, but the average person is still struggling with inflation and stagnant wages. South Korea's housing market concerns sound very familiar—we have similar issues in many states in India. The BOK's rate hike dilemma is exactly like RBI's problem.
Nomura is right to be skeptical. We Indians know this pattern too well—our pharma or auto exports boom, but the benefits don't reach the bottom of the pyramid. The 17% department store spending vs 2.5% overall card spending is a red flag. It means only the rich are splurging. And the auto sales drop? Same story in India—Maruti is struggling while luxury car sales are up. Achha hai ki unki baat sun rahe hain. 🙂
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