(Bloomberg) -- South Korea’s export growth accelerated last month, reflecting resilience in global demand as the artificial intelligence and technology sectors drive record gains in semiconductor sales.

Average daily shipments increased 12.4% from a year earlier, according to data released Monday by the customs office, compared with 9% growth in May. Headline exports, which don’t reflect differences in the number of working days in the reporting month, rose 5.1%, while overall imports fell 7.5%. That resulted in a trade surplus of $8 billion, the biggest since 2020.

Trade is a key engine for South Korea’s economy and technology is a cornerstone of the nation’s export industries. Semiconductors and rechargeable batteries have led a recent expansion in shipments as global demand for artificial intelligence and electric cars soars.

The value of semiconductor shipments amounted to $13.4 billion, jumping 51% from a year earlier in June, the trade ministry said in a statement. Display products rose 26% while exports of computers gained 59% from a year earlier. The sales of wireless communications devices advanced 3.9%.

Demand from the US led the gains in exports, with shipments to the world’s largest economy rising 15% from a year earlier in June. Sales to China, which is struggling to recover economic momentum from a property slump, increased 1.8%, marking a fourth month of growth. Official Chinese purchasing managers data released at the weekend showed activity in the factory sector there continuing to shrink in June.

South Korea’s largest trade surplus since September 2020 supports the view that the economy may grow more than previously forecast this year. It also suggests the weakening of the local currency is forcing importers to cut back on purchases from abroad, said Austin Chang, director of analysis and forecasts at the Korea International Trade Association.

In a separate survey released Monday by the Federation of Korean Industries, South Korean firms said stability in the foreign exchange market ranks as the most important policy objective from their perspective. They see 1,332 as the preferred level for the won against the dollar. The won was around the 1,378 mark against the US currency mid-morning Monday.

“Exports will continue to lead overall growth in the current quarter but a larger decline in imports raises concerns about domestic growth,” ING economists led by Robert Carnell said in a note.

Almost two thirds of major South Korean companies in the survey expect exports to keep rising in the second half. Separate data out Monday also pointed to continued strength in the factory sector as S&P Global’s manufacturing PMI for June rose to 52 from 51.6 in May, its highest since April 2022. 

While the outlook for exports remains bright, South Korea may face the risk of cheaper goods from China if the world’s largest manufacturing country floods the market with them to ride out its economic trouble, Chang said. Meanwhile, South Korean businesses may also have to grapple with stronger trade protectionism and fewer tax incentives in the US should Donald Trump retake the White House in November elections in the longer term, he added.

What Bloomberg Economics Says...

“The tech sector continues to support exports, with semiconductor shipments surging on booming AI-led demand. The data reinforce our view that external demand will drive the economy’s growth in 2024.”

— Hyosung Kwon, economist

For the the full report, click here

South Korea is rolling out a series of initiatives to boost the flexibility of local industries dependent on imports to produce high-tech products. With growing geopolitical tensions, the country is focusing on boosting supply chain resilience to build a buffer against unexpected disruptions to global commerce.

The government is also encouraging exporters to diversify their sales routes. South Korean exporters are among the most dependent on China for demand at a time when the world’s second-largest economy is struggling to rebound from an economic slump. Beijing is also attempting to ensure that more of its domestic industries can sustain themselves without reliance on imports.

Strength in the US economy, meanwhile, has been a boon for South Korean exporters, including Samsung Electronics Co., as American companies such as Nvidia increase their orders. The US has at times outweighed China in recent months in demand for South Korean products, marking a turning point in Seoul’s trade relations with its two biggest trading partners.

While South Korea exports less to China, its import dependence remains “structurally high,” making it difficult for Seoul to reduce its reliance on China within its manufacturing supply chains, according to Citigroup economists Jin-Wook Kim and Jiuk Choi.

South Korean companies, such as SK Hynix Inc., still operate key factories in China, sourcing their materials from local vendors. That’s a concern for US policymakers who want to squeeze the flow of advanced technology into China.

Last week the US, Japan and South Korea convened a meeting in Washington where top industrial policymakers pledged to deepen ties in supply chains and key technologies, including semiconductors, critical minerals and cybersecurity.

(Adds comment from ING economists in eighth paragraph. An earlier version of the story corrected the trade surplus chart.)

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