South Korea is more hopeful about a gradual recovery in the economy, driven largely by revived global demand for its mainstay export semiconductors, despite lingering economic uncertainties from global geopolitical risks.
“We’ve seen signs of a gradual economic recovery driven by a rebound in factory output and chip exports, on top of the continued improvement in the service sector and employment,” Korea’s Ministry of Economy and Finance noted in a monthly economic assessment report on Friday.
This reflects a more positive tone from the Korean government after it said last month that the country’s economic slowdown had moderated.
“We are not 100% assured about the recovery, but we see a few more positive aspects about the economy this month than last month,” Lee Seung-han, the director of the ministry's economic analysis division, explained during a briefing the same day.
The country's factory output increased 3.0% in September from a year ago and 1.8% from the previous month, while its payroll added 3,460,000 new jobs in October from a year ago, according to government data.
REVIVED CHIP DEMAND
The government cited the revived global chip demand as a key reason for a recovery in the country’s exports, the main driver of Korea’s economic growth.
“The spot prices of semiconductors have been steadily rising,” brightening the global chip demand outlook, said Lee.
He added that overseas demand for Korean cars remained solid, boding well for the country’s overall exports.
China’s economy has also fared better than expected since August, easing default concerns in the country’s real estate market, which is additional good news for the Korean economy.
Beijing is Seoul’s top trade partner.
Expectations are also growing that the US Federal Reserve would soon stop its historic rate hike campaign after inflation in the world’s No. 1 economy slowed in October.
“It is too soon to expect a pivot in the Fed’s rate decision, as the US is more likely to maintain high interest rates over the long term,” said Lee, adding that the market sees little room for the Fed’s aggressive tightening move.
But uncertainty lingers over global geopolitical risk stemming from the Russia-Ukraine and Israel-Hamas wars, increasing volatility in the global commodity market.