The Korea Development Institute (KDI), a state-run research institute, assessed that while manufacturing production has adjusted, the Korean economy is maintaining a gradual improvement trend on the strength of semiconductor exports and a robust services sector.
In its "Economic Trends, July Issue" released Tuesday, the KDI said, "The Korean economy is maintaining a gradual improvement trend, supported by semiconductor exports and a robust services sector, despite an adjustment in manufacturing production."
The KDI assessed that exports continued to post high growth centered on information and communication technology (ICT) items such as semiconductors, driven by solid artificial intelligence (AI)-related demand.
June exports rose 70.9% from a year earlier. On a daily average basis, semiconductors grew 179.6% and computers 281.6%, leading the export gains. As exports increased far more sharply than imports, the trade balance recorded a surplus of $36.15 billion.
However, the growth in semiconductor export volume moderated somewhat. The KDI explained, "The growth in semiconductor export volume adjusted, but rising prices kept exports strong in value terms."
Production continued its improvement trend, led by the services sector.
All-industry production rose 2.3% in May, maintaining a growth pace similar to the previous month (2.4%). Services production increased 4.9%, centered on finance and insurance (10.4%) and professional, scientific and technical services (17.5%). Services closely tied to domestic demand, such as wholesale and retail and accommodation and food services, also improved.
By contrast, mining and manufacturing production fell 0.9%. With the semiconductor production growth rate falling from 13.3% to 1.5%, automobile production declined 5.2% due to production disruptions caused by a fire at a parts supplier. Petroleum refining (-14.7%) and chemical products (-2.8%) were also sluggish due to the impact of crude oil supply disruptions.
Facility investment continued its high growth, centered on semiconductor-related investment. May facility investment rose 9.7%, while investment in semiconductor manufacturing equipment surged 75.9%. However, non-semiconductor sectors such as general industrial machinery and electrical and electronic equipment showed weak trends.
Employment slowed, centered on manufacturing. The number of employed persons in May fell by 40,000 from a year earlier, turning to a decline. Manufacturing employment fell by 140,000, widening the decline from the previous month (-55,000).
The inflation rate remained at a high level. June consumer prices rose 3.2% from a year earlier, similar to the previous month (3.1%). Petroleum product prices climbed 24.7%, continuing to act as a major upward factor. Core inflation also held at 2.5%, unchanged from the previous month.
The KDI analyzed that although the price of Dubai crude fell rapidly in June amid easing tensions in the Middle East, the import price of crude oil remained high due to the time lag in imports. It added, "Despite the decline in international oil prices, the effects of the prolonged high exchange rate are being transmitted with a time lag, so the slowdown in consumer price inflation may be gradual."
External risks have eased somewhat, but uncertainty remains, according to the assessment. The KDI said, "As ceasefire negotiations between the United States and Iran began in mid-June, external risks are easing somewhat, but uncertainty over whether a final agreement will be reached persists."
