South Korea economy grows faster than expected in Q2 as chip exports power recovery

South Korea’s economy expanded more than expected in the second quarter, helped by a surge in semiconductor exports that offset weakness in construction and domestic demand.

Gross domestic product rose 0.6 per cent in the April-June period from the previous quarter on a seasonally adjusted basis, preliminary data from the Bank of Korea showed on Thursday. That was above the 0.4 per cent increase forecast by economists in a Reuters poll.

On a year-on-year basis, the economy grew 3.7 per cent in the second quarter, also beating the 3.5 per cent forecast.

Even so, the latest reading marked a sharp slowdown from the revised 1.8 per cent expansion recorded in the first quarter.

Semiconductor exports drive South Korea growth

Exports were the main driver of growth during the quarter, rising 1.4 per cent from the previous three months.

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The Bank of Korea said the increase was led by shipments of semiconductors, machinery and equipment.

South Korea has benefited from robust global demand for memory chips as companies worldwide ramp up investment in artificial intelligence infrastructure and data centres.

The country is home to some of the world’s biggest semiconductor manufacturers, including Samsung Electronics and SK Hynix. The global AI boom has therefore provided a significant boost to South Korea’s export sector.

Chip and machinery exports, along with investment in research and software development, helped sustain growth in the second quarter.

The figures highlight the continuing importance of the semiconductor industry to South Korea’s economy, particularly as domestic demand remains relatively weak.

Construction investment declines

Private consumption expanded 0.4 per cent from the previous quarter.

Construction investment, however, declined 0.2 per cent.

Weakness in construction and subdued domestic demand weighed on overall economic activity and contributed to the sharp deceleration from the first quarter.

Despite the slowdown, the stronger-than-expected GDP data suggested that export-led growth continues to support Asia’s fourth-largest economy.

Bank of Korea raised interest rates

The latest GDP figures also come after the Bank of Korea raised its benchmark interest rate by 25 basis points in July.

The move marked a shift towards tighter monetary policy as policymakers weigh the strength of exports against weakness in domestic demand.

The central bank is expected to closely monitor the economy’s performance as it balances resilient semiconductor exports with challenges facing consumption and construction.

South Korea’s economic outlook remains closely linked to the global technology cycle.

The artificial intelligence boom has fuelled a surge in investment in advanced computing infrastructure, supporting demand for high-performance memory chips and related equipment.

This has benefited South Korean semiconductor manufacturers and helped exports remain a key source of economic growth.

Analysts and policymakers have remained relatively upbeat about export-led growth for the rest of the year, even as the economy lost momentum from the first quarter.

However, the reliance on semiconductors also creates risks. A slowdown in global technology demand, a downturn in the chip cycle or changes in international trade could weigh on exports and overall growth.

With inputs from agencies.