The Korea Development Institute (KDI) said South Korea's economy is sustaining its recovery, driven by exports and capital spending tied to artificial intelligence. But it said consumption remains sluggish because the benefits of the upturn have yet to spread across households. Underlying inflation is also picking up, the think tank said, pointing to high oil prices and rising production costs.
"The Korean economy is maintaining its improving trend, supported by strong AI-related exports and capital spending," KDI said in its October Economic Trends report released on the 12th. The assessment keeps intact the view it expressed a month earlier that the recovery is continuing. This time, the institute emphasized that solid global demand for AI infrastructure investment is keeping related exports and capital spending on a steep upward path.
KDI said semiconductor and computer exports continued to post sharp gains, while shipments of AI infrastructure-related goods such as steel products and non-ferrous metals also held up well. Capital spending is broadly firm, it said, as semiconductor-related investment stays strong and investment in other machinery expands.
Exports rose 83.5% in September from a year earlier. On an average daily basis, semiconductor and computer exports surged 304.9% and 497.6%, respectively. Capital spending climbed 16.1% in August, with investment in semiconductor manufacturing equipment up 107.7%.
Production also held up relatively well. All-industry output grew 1.9% in August from a year earlier, a slower pace than July's 3.1%, but on a three-month moving average basis it showed an improvement similar to the previous month. Growth in services output accelerated to 4.6% from 3.4%. KDI said the weakness in manufacturing employment is easing somewhat.
Consumption, by contrast, is improving only gradually, the institute said. "With the effects of the recovery failing to spread across households, the improvement in consumption remains modest," KDI said.
Retail sales fell 0.3% in August from a year earlier and dropped 1.8% from the previous month on a seasonally adjusted basis. Passenger car sales fell 19.2%, while output in the lodging and restaurant industry declined 2.8%, extending weakness in sectors closely tied to consumer spending.
Household purchasing power is also recovering slowly. Real wages rose just 0.2% in the January-July period. KDI said weak underlying wage growth, combined with persistent supply-side price pressures such as high oil prices, is limiting any improvement in conditions for consumption.
Price pressures are building. Consumer inflation slowed to 2.9% in September from 3.1% the previous month, but that largely reflected the fading of a base effect related to telecommunications costs. Core inflation excluding telecom costs quickened to 2.8% in September from 2.6% in August.
Dubai crude jumped to an average $113.7 a barrel in September from $88.8 in August. KDI said supply-side factors, including higher global oil prices and production costs, are the main source of inflationary pressure. It also flagged rising energy prices and inflation concerns stemming from heightened tensions in the Middle East as downside risks to growth.