"Semiconductors Turned Out This Good"... Will Growth Exceed 2.0% This Year? [Overall]

[The Financial News] South Korea's economy posted an "earnings surprise" in the first quarter of this year, with growth reaching 1.7%, making it increasingly likely that annual growth will exceed 2.0%. Despite the shock from the Middle East crisis, semiconductors are accelerating the recovery, raising expectations that exports will lead a broader economic upswing.
Still, the impact of the war is expected to be fully reflected from April, and the long-troubled recovery in construction investment is not yet secure. Those factors are seen as downside risks.
■Annual growth rate likely to top 2.0%According to the Bank of Korea (BOK) on the 23rd, the growth forecast for real Gross Domestic Product (GDP) in the first half of this year stands at 2.4% from a year earlier. Since first-quarter growth has already reached 3.6%, there is room to meet or exceed that forecast even if the second quarter slows somewhat due to base effects and other factors. If the second-half forecast of 1.6% is met, full-year growth could exceed 2.0%.
Even on a quarter-on-quarter basis, the economy posted 1.7%, far above the first-quarter estimate of 0.9%. If it surpasses the quarterly forecasts of 0.3% in the second quarter, 0.4% in the third quarter, and 0.4% in the fourth quarter, annual growth would also come in above 2.0%.
Under the BOK's earlier optimistic scenario, South Korea's economic growth rate this year would be 0.2 percentage points higher than the forecast of 2.0%. That scenario assumed export volumes would maintain last year's 16% growth pace as competition to secure semiconductors intensifies amid the spread of Physical AI.
Exports once again lifted overall growth. Shipments rose 5.1% quarter on quarter, led by information technology items such as semiconductors. That is the highest level since the third quarter of 2020, when growth reached 14.6%. The contribution to growth was 2.4 percentage points, the largest among all sectors.
The BOK expects this trend to continue for now. Even amid the Middle East crisis, Samsung Electronics and SK hynix, South Korea's leading semiconductor companies, posted record earnings. Their operating profits in the first quarter were 5.72 trillion won and 3.76103 trillion won, respectively, up 755% and 405% from a year earlier.
Dongwon Lee, director general of the BOK's Economic Statistics Department 2, said, "We expected a semiconductor boom, but it was hard to imagine it would be this strong." He added, "Even after the Middle East war, exports centered on semiconductors are performing well, and government policy effects are expected to appear from the second quarter."
Real Gross Domestic Income (GDI) also rose 7.5%, the highest increase in 38 years since the first quarter of 1988, and far outpaced GDP growth. Lee explained, "This was the result of a sharp rise in the export prices of goods produced by companies, and that in turn supports higher facility investment and wages."
■"The impact from the Middle East will begin in April"The preliminary first-quarter growth figure did not fully reflect the impact of the Middle East crisis. Lee said, "Ships continued to arrive in South Korea through the Strait of Hormuz until late March, and in simple terms, the economy was affected for about 10 days out of the 90 days in the first quarter by disruptions to energy supply." He added that "the full impact will appear from April." As a result, the growth forecast for the second quarter could be revised downward in next month's economic outlook.
If the semiconductor cycle cools, growth could quickly lose momentum. Semiconductor manufacturing accounted for about 55% of the first-quarter increase in GDP, according to preliminary estimates. That means the economy is being supported by only a handful of leading companies.
Byunghee Yoo, director-general for economic policy at the Ministry of Economy and Finance (MOEF), said, "In the second quarter, a base effect and the full-scale impact of the Middle East war are likely to overlap, making an adjustment unavoidable." He added, "The annual growth outlook should be watched more closely, given the uncertainty surrounding how the war will unfold."
Consumer growth is also lagging behind exports. Private consumption and government consumption rose only 0.5% and 0.1%, respectively. Still, Lee said, "Although the growth rates themselves are not high, private consumption, which accounts for 50% of our economy, is serving as a buffer. If it had contracted, it would have been difficult to lift growth at all."
Construction investment, which has long been a headache, also turned around with a 2.8% increase, but it still contracted 1.4% from a year earlier. The BOK believes it is still too early to relax. Lee noted, "Since September last year, the government has expanded public housing supply, and some redevelopment projects have also resolved disputes over construction costs." He added, however, that "if raw material prices surge, construction cost problems could flare up again."
taeil0808@fnnews.com Kim Tae-il, Seo Young-joon, Kim Chan-mi Reporter