Optical Illusions in the Korean Economy Caused by Semiconductors

Optical illusions caused by the semiconductors industry have been appearing in the Korean economy. It is a situation where economic indicators have been inflated compared to the actual economic conditions as the semiconductors industry, one of the major pillars bolstering the Korean economy, has begun to be considered significantly in economic areas such as exports and productions.

A boom in the semiconductors industry can be attributed to economic recovery. However, a concern over its downsides, which can impair the economy in a way that heightens economic instability and that complicates the ability to evaluate an overall economic diagnosis through a lopsided economic growth structure, has also been raised.

According to a report published by the Bank of Korea (BOK) and the National Statistical Office (NSO) on Wednesday, industrial output (126.7) in May demonstrated a remarkable increase of 13.5 percent from a year ago. However, the increase falls to only 5.7 percent when excluding strong outputs of semiconductors (254.0). For the same period, the output of semiconductors astonishingly soared 67.9 percent.

Additionally, the producers’ shipments in May rose 11.0 percent from a year ago, but the increase plunged to 4.8 percent when excluding the semiconductors (232.9).

The rate of factory operations jumped 5.1 percent in May from the previous year, attributed by a soaring increase of 24.4 percent by the semiconductors.

Accordingly, the proportion that the export of semiconductors occupies in the aggregated export exceeds 10 percent again.

According to the “Trend of the International Balance of Payments in May” published by the BOK on Tuesday, the exported amounts of semiconductors in May were found to total $2.36 billion, an increase of 69.6 percent from the previous year.

The proportion that the export of semiconductors occupies in the aggregated export ($20.84 billion) rose to 11.3 percent, an increase of 1.8 percent from the previous year.

The semiconductors industry, which emerged as a major pillar that has bolstered the Korean economy since the 1990s, has expanded its influence significantly to a point where it has seized approximately 15 percent of the aggregated export for two periods (1994-1995 and 1999-2000) and where it has been causing optical illusions for the Korean economy.

Private economic experts indicate that economy growth dependent on limited industries such as the semiconductor heightens a volatility of the Korean economy and hinders facility investments.

A researcher from Hanwha Securities mentioned, “A favorable export condition in limited products including the semiconductors which has sustained the Korean economy could be jeopardized by a retrenchment policy in China and an increase in interest rates in the U.S. Therefore, optical illusions caused by the semiconductor industry can obstruct an accurate diagnosis.”

Chi-Young Shin higgledy@donga.com