Lee Hyo-jin covers the Bank of Korea, the banking industry and broader financial news. Her previous beats include foreign affairs, North Korea and general reporting on Korean society.
Korea's growth outlook keeps improving, but people aren't feeling it
Restaurant and bar signs are seen along an alley in Jongno District, Seoul, Monday. Newsis
By Lee Hyo-jin
Semiconductor gains yet to spread across broader economy
Lee Ji-eun, a clothing retailer in her 30s who runs a small shop in northeastern Seoul's Nowon District, says the country's improving growth outlook feels distant from what she sees in her own business, with foot traffic at her store yet to pick up.
"It's hard to feel an economic recovery when prices are still so high. I've also been cutting back on cultural activities, leisure and other spending myself, so I can understand why consumers are cutting back," Lee said.
For Park, an office worker in the manufacturing sector who lives in Seongnam, Gyeonggi Province, the economic growth driven by the semiconductor boom has done little to change her own financial situation.
"My wages are the same, but when I hear about the big bonuses being paid at semiconductor companies, I feel kind of left behind," Park said.
Shin, a small business owner in his 60s in Gyeonggi Province, said, "They say the economic figures are improving, but it's the big companies and exporters that are making the money. For people like us who make a living day to day, it feels like it's happening in another country."
Their concerns reflect that while Korea's growth outlook continues to improve on the back of a chip export boom, the benefits have yet to reach households and small businesses.
The Korea Development Institute (KDI) on Wednesday raised its forecast for the country's economic growth this year to 3.2 percent from 2.5 percent, citing stronger-than-expected semiconductor exports driven by the artificial intelligence (AI) boom. About 0.6 percentage point of the 0.7 percentage point upgrade was attributed to semiconductors and their spillover effects.
In a recent report, Moody's also raised its forecast for Korea's growth to 3.5 percent from 2.5 percent, betting that the AI-driven memory chip boom will continue through mid-2027.
The semiconductor boom is driving a sharp increase in the nation's current account surplus. KDI expects the country to post a surplus of $359.7 billion this year, nearly tripling last year's $123.1 billion.
But the benefits of the semiconductor boom have yet to spread evenly across the economy.
Experts say the chip industry relies heavily on capital and technology, so strong production and exports do not necessarily generate as many new jobs as they might in other sectors such as manufacturing and services.
Samsung Electronics and SK hynix chips are loaded onto a Korean Air cargo aircraft bound for Hong Kong at Incheon International Airport, July 30. Joint Press Corps
Kang Sung-jin, a professor of economics at Korea University, said growth is becoming increasingly uneven across sectors, with a small number of industries and companies benefiting while other parts of the economy continue to struggle.
"The current growth rebound is being driven by the semiconductor boom, not a broad improvement in domestic and global market conditions. Non-semiconductor companies that rely on domestic demand are still struggling," Kang said.
"Rising oil prices, a weaker won and higher inflation are putting additional pressure on small and medium-sized businesses that rely on domestic demand," he added, calling for targeted support for small and medium-sized businesses and vulnerable groups.
Another concern is that stronger growth may drive continued upward pressure on prices, the professor said.
Consumer prices rose 2.8 percent in July from a year earlier, while core inflation climbed 2.6 percent, its fastest increase since December 2023. Inflation is expected to pick up again in August, according to the Bank of Korea.
Kim Mee-roo, head of KDI's department of macroeconomic and financial policy, offered a similar assessment, warning that the optimistic growth figure may not fully reflect how people experience the economy in their daily lives.
"Since the gains from semiconductors are highly concentrated, I think the perceived economic conditions will be worse than the headline figures suggest," Kim said at a press briefing Wednesday.
"Semiconductor manufacturers are mostly large companies, while more people work for small and medium-sized businesses. So there is bound to be a gap between the growth rate and how people feel about the economy."
The strong performance of the semiconductor sector is a clear positive factor for the economy, he said, but stressed that structural reforms and other policy measures are needed to help other sectors grow as well.