South Korea’s artificial intelligence-led semiconductor boom has yet to generate a meaningful spillover into the broader economy, even as concerns over the won and financial stability are increasing the likelihood of a Bank of Korea (BOK) rate hike next month, Nomura’s senior economist said.Speaking at Nomura’s Korea Equities & Economy Media Briefing in Seoul, Park Jeong-woo, Nomura’s senior economist for South Korea and Taiwan, said the key issue was not whether semiconductor stocks were performing well, but whether that strength was translating into wider economic activity, according to The Korea Herald, as cited by ANI.“No one can deny the strength in semiconductors, and the stock market has been strong on the back of that,” Park said. “The key question is whether that strength is flowing into the rest of the economy.”Park said the BOK appears to have shifted its tone since May, placing less emphasis on a K-shaped recovery and more on the expected trickle-down effects from the semiconductor upcycle.However, Nomura remains unconvinced that the benefits have become broad-based.“So far, the evidence that the warmth is spreading to domestic demand is not that strong,” he said.The comments come as South Korea continues to benefit from strong global demand for AI-related chips, a trend that has boosted semiconductor exports and lifted equity markets. However, according to The Korea Herald report cited by ANI, Nomura believes the broader economy has yet to experience the full benefits of the boom.Park said semiconductor exports have been driven largely by price effects, while shipment volume growth has not been exceptional by historical standards. As a result, the sector’s contribution to gross domestic product may be less significant than headline export figures suggest.Business investment has been supported by chipmakers’ capital expenditure cycle and is likely to remain strong through the third quarter, he said. But the effect could fade later in the year, while construction activity remains under pressure from elevated interest rates and higher building costs.Consumption data also presents a mixed picture.Park noted that department store card spending rose 17%, far ahead of overall card spending growth of about 2.5%, though much of the increase appeared concentrated in luxury purchases. Domestic automobile sales, meanwhile, declined about 8% in May.“The evidence that the semiconductor and stock market boom is moving into consumption is still not very strong,” Park said, ANI quoted.Nomura expects South Korea’s economy to grow 2.4% this year, below the BOK’s forecast of 2.6% but above the country’s estimated potential growth rate of less than 2%.“Two-point-four per cent is not a weak number,” Park said. “But given the higher expectations and the limited speed at which the strength is spreading into domestic demand, we think it is an appropriate growth rate for this year.”On inflation, Park said Nomura sees current price pressures as primarily supply-driven rather than the result of strong demand.Employment and wage indicators do not yet show the broad inflationary pressures seen during 2021-23, he said, adding that inflation could peak around August or September.Despite that assessment, Nomura expects the BOK to raise its policy rate in July and eventually take it to 3.25%.Park said the expected move would be driven less by growth and inflation concerns and more by financial stability considerations, particularly the won and the housing market.“A 25-basis-point hike would not change the direction of the exchange rate,” he said, adding that a much larger increase would be required to significantly influence the currency, though such a move appears unlikely given the burden it would place on households and companies.
