[Editorial] The warning that Korea is losing competitiveness outside semiconductors

South Korea’s economy, which had been somewhat sluggish last year, posted a sharp rebound in the first quarter of this year, helped by strong semiconductor exports. The result exceeded expectations. Some major foreign media outlets have even described the Korean economy as a "winner in the global economy." But the country now appears overly dependent on a single engine. Semiconductors are effectively carrying growth on their own. It is hard to guarantee sustained flight with just one engine. That is welcome, but also unsettling.
The Bank of Korea said on the 9th that first-quarter real Gross Domestic Product (GDP) growth was 1.8%, 0.1 percentage point higher than the preliminary estimate. The flash estimate released in April had already far exceeded market expectations, and the final figure was even higher. Compared with the pattern of last year, when the economy contracted 0.2% in the first quarter, then recovered to 0.6% in the second quarter and 1.4% in the third before slipping back to -0.1% in the fourth, this rebound carries significant meaning. Nominal GDP rose 10.5%, the highest level in 50 years. That is why expectations are growing for an upward revision to this year’s growth outlook.
Real Gross National Income (GNI) also rose 9.2% from the previous quarter. As real household income conditions improve, hopes for a recovery in domestic demand are also rising. The Financial Times (FT) said the boom in key industries such as semiconductors, defense industry and shipbuilding is driving South Korea’s growth. Michael Breen, chief executive of Insight Communications, told the FT that "despite structural problems such as dependence on imported energy, high prices and youth unemployment, the growth engine is still working well." For now, that means the country’s key industries are still maintaining their competitiveness.
But the downside of growth is also substantial. The GDP deflator, which shows the overall price level of goods and services produced domestically, reached 12.9%. That means rising export prices lifted nominal indicators, while companies also faced heavier cost burdens and stronger inflation pressure in daily life. Much of the money earned by exporters is being absorbed by higher prices for imported raw materials and energy, and that burden can be passed on to domestic consumer prices.
The warning quoted in the FT from Young-Han Kim, a professor at Sungkyunkwan University (SKKU), should not be dismissed lightly. He said, "Korea is losing its comparative advantage in almost every sector except semiconductors." That is a warning about the limits of this growth. Moreover, the technology gap with China is narrowing quickly. If the country fails to secure the next growth engine, it will be difficult to count on what comes after the semiconductor boom. There are also concerns that competitive advantages are weakening in industries such as Machinery, batteries and displays.
The task is clear. Improved household income must translate into consumption, so domestic demand recovery needs to accelerate. At the same time, Korea must preserve its semiconductor edge and diversify the pillars of growth by nurturing future industries such as biotechnology, software and advanced materials. It is time for a second engine. News of an economic rebound is welcome. But whether this upswing ends as a temporary boom or becomes the starting point for sustainable growth will depend on how the country prepares now.