Semiconductor exports are setting new records each month, but consumer sentiment has not recovered to early-year levels. Spillover effects into related industries are also slow, prompting criticism that polarisation is deepening.

The Ministry of Trade, Industry and Energy said August semiconductor exports rose 206.1 percent from a year earlier to $46.8 billion, accounting for nearly half of total exports for the month. The Bank of Korea, however, sees direct benefits of the boom as concentrated in certain industries and income groups, which could limit positive spillovers to the broader economy.

The Bank of Korea said the consumer sentiment index (CCSI) peaked at 112.7 in February before turning downward. The August reading was 104.5, below the level in December last year. It fell below the baseline of 100 in some months and rose for three straight months from May, but did not return to early-year levels. The Bank of Korea cited stock market adjustments and accumulated inflation burdens as factors behind the August decline. That contrasts with semiconductor exports, which posted triple-digit growth for eight consecutive months over the same period.

It is not only consumption where spillovers are slow. August system semiconductor exports rose 24.3 percent, less than one-tenth of the growth rate for memory. By process, growth was led by back-end packaging and testing and by fabless firms handling design, while foundry exports, which cover contract manufacturing, fell 2.0 percent. Domestic foundries failed to maintain even last year's performance while memory posted triple-digit growth for eight consecutive months.

The concentration is clearer outside semiconductors. Exports of items excluding semiconductors rose only 18.0 percent in January to August. Over the same period, semiconductors accounted for 40.6 percent of total exports, while exports of passenger cars and auto parts fell from a year earlier, extending last year's declining trend.

Price factors lie behind the one-sided export growth. The ministry said August memory semiconductor exports rose 290.2 percent from a year earlier to $40.94 billion. That reflects that higher fixed transaction prices for memory were a major driver of the increase. Products that lifted exports were also concentrated in items headed for data centres, such as high bandwidth memory (HBM) and server DRAM modules.

Lack of statistics to track spread of gains... "Need structure to channel export-led growth into domestic demand"

For now, rising exports are not reaching consumption and investment directly. Minutes from the Bank of Korea's Monetary Policy Board meeting in July explained that if prices rise without changes in volume and quality, real gross domestic product (GDP), measured on a volume basis, does not immediately increase. Even if higher fixed transaction prices for memory drive export growth, it takes time for that to reach consumption and investment, it said.

The Bank of Korea has previously attached that time lag as a caveat to its growth forecasts. It put this year's growth at 3.3 percent, citing the semiconductor boom and the spread of its spillover effects. It also forecast facility investment would rise 6.8 percent this year and increase 4.7 percent next year as semiconductor companies accelerate capacity expansion.

At the same time, it wrote that the direct benefits of the semiconductor upturn being concentrated in certain industries and income groups could limit positive spillovers. One board member said deepening reliance on the IT industry could weaken investment and innovation capacity in other manufacturing and services industries, and that sectoral imbalances could undermine the foundations of growth itself.

While such concerns have been repeated, statistics to confirm whether spillovers are actually being constrained have not been put in place. One board member asked relevant departments to compare household microdata between regions concentrated in semiconductors and other regions to analyse the channels through which a strong industry cycle spreads to consumption and inflation.

A business official said "K-shaped polarisation is appearing, where semiconductor export performance and perceived domestic demand conditions move separately" and said "as production sites become automated around equipment and supply chains globalise, we need to revisit the premise that increased exports are followed by a trickle-down effect". The official also said it is necessary to track how benefits spread while the boom continues and restructure the system so that export-led growth effects are actually channelled into domestic demand.