Behind South Korea's push past the $30,000 mark in per-capita gross national income for the first time in 12 years lie a semiconductor super cycle and the recent strength of the won.
GNI measures income earned by nationals at home and abroad, and its increase means purchasing power has grown by that much. The Bank of Korea factors terms of trade into GNI, reflecting the volume of imports that can be bought with the same volume of exports. As chip prices jumped, terms of trade improved and total national income rose. The stronger won also worked in favor of expanding purchasing power.
With per-capita GNI projected to exceed $40,000 this year, Korea is expected to be able to overtake Japan again after falling behind last year. Taiwan, which is expected to post real gross domestic product growth of more than 10% this year, already surpassed $40,000 in per-capita income last year and is projected to grow sharply again this year, leaving the prevailing view that overtaking it will not be easy.
Experts caution, however, that it is not yet time to celebrate crossing $40,000. The economy's rapid growth this year owes much to seasonal factors tied to the semiconductor boom. Nominal GDP rose 26.4% from a year earlier in the second quarter largely because chip export prices surged. The domestic demand deflator, by contrast, rose 3.6%, or about one-sixteenth of the increase in the export deflator. That means nominal growth was driven by export prices centered on chips, not by overall domestic prices.
Structural low-growth problems also remain unresolved. Korea took 12 years to move from $30,000 to $40,000 in per-capita income, while Britain cleared the barrier in two years, Japan in three, Germany in four and Taiwan in five. Economists say that unless chronic problems such as a low birth rate, population aging and weak productivity are addressed, the country could sink back into the $30,000 range as Japan did. A senior official at an economic ministry said the country's future depends on how the time bought by additional tax revenue from chips is turned into higher potential growth.
Exports, including chips, are also spreading to domestic demand only slowly. Private consumption rose just 0.4% from the previous quarter in the second quarter, while government consumption gained 0.1%.
The gap between corporate income and household income growth was also stark. Total operating surplus rose 18.5% from the previous quarter, the fastest pace since the data series began in the second quarter of 2010. Compensation of employees, the household share, rose just 1.9%.
With income gains not immediately translating into spending and investment, the flow of savings and investment shifted as well. The gross saving rate rose 3.9 percentage points from the previous quarter to 45.6% in the second quarter, the highest since the data series began in the first quarter of 1970. The gross domestic investment rate fell to 24.2% from 25.3%, the lowest in 51 years, since the third quarter of 1975 at 22.0%. The shift is read less as a plunge in investment than as a result of income rising far faster than investment.
The Bank of Korea and the Korea Development Institute differ on the path ahead. The BOK leans toward the possibility that corporate income gains, spreading beyond chips to other manufacturing such as chemicals and shipbuilding and to services, will feed into household income and a consumption recovery with a lag. Corporate profit gains could be transferred to household income through interim corporate tax payments, cash dividends and performance bonuses in the second half, it says.
The KDI, by contrast, emphasizes that the warmth of the improving economy has yet to spread sufficiently across households. Exports and corporate earnings are improving quickly, led by chips, but the institute judges that improvement in household income conditions is limited, with real wage growth at just 0.3% in the first half.
The difference is reflected in growth forecasts for this year. The BOK projects 3.3% growth, factoring in the chance that rising corporate income will feed into consumption and strengthen a domestic demand recovery, while the KDI put its forecast at 3.2%, allowing for the possibility that corporate-led growth will not spread sufficiently to households.
Rising export prices lifted not only corporate income but also the real purchasing power of the population as a whole. Real GNI rose 3.1% from the previous quarter in the second quarter, far outpacing the 0.6% increase in real GDP. From a year earlier, it climbed 15.6%, the fastest since the fourth quarter of 1988 at 15.7%. Real net factor income from abroad fell, but terms of trade improved as export prices rose far more than import prices.
