Chip industry's exports on track for recovery

An engineer explains about bare boards used to make semiconductors during the 2023 Semiconductor Exhibition (SEDEX) at COEX in southern Seoul, Oct. 25. Yonhap

Korea's chip industry is on track for a recovery in exports, data showed, Tuesday, fueling optimism that it could help the country’s entire manufacturing industry gain momentum given that chips have been the top sales item abroad.

The recovery also raises speculation about whether the export-reliant Korean economy can rebound in the face of high interest rates and upward inflationary pressures that have been weighing on private spending.

According to Statistics Korea, outbound shipments of semiconductors were worth $9.94 billion in September.

Last month’s figure was down 13.6 percent from a year earlier.

But market observers are optimistic, given that such sales were the highest since 2022 while the year-on-year fall was the smallest over the same time period.

The chip industry correspondingly saw a rebound in production, gaining 4.7 percent year-on-year in the third quarter after shrinking for three previous quarters.

Concerning month-on-month performance, production increased by more than 10 percent in both August and September.

In return, the manufacturing sector marked quarter-on-quarter growth – 3.3 percent in the April-June period and another 1.8 percent in the July-September period.

“Production and overseas sales of semiconductors can be said to be on a gradual recovery path, and are contributing to growth in the wider manufacturing industry,” said Park Sung-keun, a senior researcher at Korea Institute for Industrial Economics Trade (KIET).

Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI), voiced a similar view, saying, “The chip industry appears to have bottomed out and is likely to be on an upward trajectory.”

He noted that chips generally accounted for about 20 percent of the country’s entire exports, but in spring this year that rate shrank to below 15 percent for the first time since 2016.

Lee pointed out that three key indicators of industrial productivity – factory output, retail sales and facility investments – all advanced in September for the first time in four months.

According to the stats agency, factory output increased 1.1 percent month-on-month in September following a 2 percent month-on-month gain in August.

Retail sales also inched up 0.2 percent month-on-month to end a two-month losing streak, while facility investment gained 8.7 percent in September from a month earlier.

Under the circumstances, market observers remain cautious over whether a possible rebound in the manufacturing sector can result in an economic rebound.

The government forecasts that the economy will bounce back in the second half of the year after remaining sluggish in the first half, ultimately reaching the 2023 growth target goal of 1.4 percent.

Lee said that resurgent inflation and costly borrowing rates could hinder the country from achieving the growth target, in the wake of the Israel-Hamas conflict and volatile oil prices.

Consumer inflation, after falling to a 25-month low of 2.3 percent in July, is in the 3 percent range for the second straight month.

The benchmark interest rate has continued at 3.5 percent since January following the Bank of Korea’s aggressive monetary tightening policies.