(Bloomberg) -- South Korea’s export growth slowed in July, suggesting global demand may be cooling a touch after a boom in the artificial intelligence and technology sectors drove gains earlier this year.
Shipments reflecting working-day differences increased 7.1% from a year earlier, according to data released Thursday by the customs office, decelerating from a double-digit gain in June.
Without the adjustment, headline exports rose 13.9%, offering a more flattering view of the strength of shipments, though the gain also proved weaker than expected. Semiconductors and computers were among the strongest export items. Overall imports increased by 10.5%, a little below consensus. The trade surplus came in at $3.6 billion.
South Korea’s export performance will play a big role in determining whether the economy achieves an official mid-2% growth forecast for 2024. The economy shrank last quarter as it sputtered after a stronger-than-expected expansion at the start of the year.
Policymakers have played down the contraction, saying the underlying momentum of the economy remains intact. The Bank of Korea expects a global chip rally to continue through the first half of next year, and government officials are hopeful the export recovery will extend into sectors across the economy.
Second-quarter operating profit reported by Samsung Electronics Co. supports the optimism for tech, having risen 15-fold from a year earlier. SK Hynix Inc, another major chipmaker, has also said its second-quarter revenue more than doubled and its capex outlays this year would likely top earlier plans.
“Chips are the heart of exports,” said An Young-jin, an economist at SK Securities. “Outstanding performance by Samsung and SK Hynix, along with earnings from AMD, are cooling worries about chip demand.”
Technology is a cornerstone of South Korea’s economy, making it a key player in global supply chains. Other Asian countries are also scaling up their capacity to manufacture electronics goods as demand for everything from robots to electric vehicles surges globally.
South Korea’s chip exports, unadjusted for calendar differences, rose 50.4% from a year earlier in July, the trade ministry said in a separate statement. Computer sales jumped 61.6% and the shipments of wireless communications devices gained 53.6%.
“Robust electronics demand presents tailwinds to the growth outlook of high-tech economies of Taiwan and South Korea, as well as support for the downstream economies of Malaysia and Vietnam,” Bansi Madhavani, an economist at ANZ Research, said in a note before the release.
While a surprisingly strong US economy has been a boon for South Korean exporters, another key element for South Korea is how quickly demand in China recovers as Beijing takes steps to help the economy overcome the impact of its property slump. Trade tensions between China and the US also overshadow the outlook for South Korea’s export industries.
South Korea’s exports to China rose 14.9% from a year earlier in July while those to the US increased 9.3%, according to the trade ministry. Demand from China came largely from customers seeking semiconductors, smartphone parts and electronic screens, the ministry said.
The outcome of the US presidential election in November is another critical factor for Korea’s economy going ahead. Battery and automobile manufacturers are relying on subsidies provided by the Biden administration, while Republican presidential nominee Donald Trump has vowed to roll back those incentives should he return to the White House.
Expectations of renewed support for Korea’s economy from the central bank have been repeatedly pushed back. South Korean businesses are feeling the burden of elevated interest rates. Slumping investment was a key factor weighing on South Korea’s gross domestic product in the April-June period, posing concerns for policymakers.
Many economists now see the BOK easing policy in October and a likely rate cut by the Federal Reserve in September should help pave the way for South Korea to follow suit.
In a statement evaluating the Fed meeting, the BOK said Thursday that “differentiation” between countries in monetary policy would become sharper and that it would keep its eye on housing prices, household debt and foreign-exchange volatility. Uncertainties stemming from the US presidential race also add to price volatility, it said.
The BOK has held its benchmark interest rate at what it deems a restrictive level of 3.5% since early 2023, with sustained growth in exports giving authorities confidence the economy can withstand tight policy. The central bank closely monitors semiconductor market trends as the impact ripples across the economy from services to housing markets.
(Adds charts, regional breakdown, BOK statement and economist comment)
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