South Korea's economy continues to show improvement, bolstered by strong exports and capital investment in artificial intelligence (AI). However, rising international oil prices and supply-side inflation pressures are preventing this recovery from benefiting households broadly.
The Korea Development Institute (KDI) released its 'October Economic Trends' report on October 12, noting that robust global demand for AI infrastructure investment is sustaining high growth rates in exports and capital investment in related sectors.
Exports surged significantly, with September figures showing an 83.5% year-on-year increase. The average daily export amount also rose by 104.8%. Notably, semiconductor exports increased by 304.9%, while computer exports soared by 497.6%. Demand for AI infrastructure also drove a 15.3% rise in steel product exports and a 49.1% increase in non-ferrous metal exports.
Capital investment remained strong, particularly in the semiconductor sector. In August, capital investment grew by 16.1% compared to the same month last year. Investment in semiconductor manufacturing equipment surged by 107.7%, contributing to a 25.4% increase in machinery investment. Investments in general industrial machinery and electrical and electronic equipment also rose by 14.4% and 10.1%, respectively, indicating improvements beyond the semiconductor sector.
Employment conditions showed some recovery, with the number of employed individuals in August increasing by 184,000 compared to the same month last year, surpassing the previous month's increase of 108,000. The decline in employment in manufacturing and construction sectors lessened, and the increase in regular employment rose from 71,000 to 180,000. However, the employment rate for those in their 20s was 0.9 percentage points lower than the previous year, indicating limited recovery for young workers.
In contrast, consumer spending continued to lag. The retail sales index for August fell by 0.3% year-on-year and decreased by 1.8% from the previous month on a seasonally adjusted basis. A 19.2% drop in automobile sales contributed to the decline in durable goods sales. This was influenced by the end of the individual consumption tax reduction, preemptive demand adjustments, and production disruptions due to strikes at automakers and summer vacations.
The slow recovery of household purchasing power was also cited as a factor constraining consumer improvement. From January to July this year, the real wage growth rate was only 0.2%. Although the consumer price inflation rate in September decreased to 2.9% compared to the previous month, it actually expanded to 3.1% when excluding the base effect related to communication costs. Rising international oil prices and supply-side pressures have also pushed the core inflation rate up to 2.8%.
KDI noted that while AI-related exports and investments support economic improvement, high oil prices and weak wage growth are preventing a full recovery of household consumption capacity. A KDI official stated, 'The effects of economic improvement have not spread broadly to households, resulting in a gradual pace of consumer recovery. With sustained high supply-side inflation pressures due to ongoing high oil prices, the fundamental wage growth remains weak, constraining the recovery of household purchasing power.'
* This article has been translated by AI.
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