AI boom lifts S. Korea growth outlook, profits and household credit

The KDI lifted its forecast from 2.5 percent, saying global demand for semiconductor products remained stronger than expected, leading to increased exports and facility investment and eventually boosting private consumption in 2027. It projected 2.2 percent growth for 2027, up 0.5 percentage point from its previous outlook. The think tank said South Korean export volumes are expected to grow 8.7 percent this year and 5 percent next year despite U.S. tariff measures and geopolitical uncertainties in the Middle East, because AI-related investment around the globe is expected to offset such hurdles. It said exports of computers, electronics and optical instruments continue to grow at a sharp pace, with the current account posting an unprecedented surplus, and facility investment is expanding led by chip-related segments, while construction investment remains sluggish due to a slump in the housing market outside the greater Seoul area.

Global credit appraiser Moody's Ratings has also reportedly raised its growth forecast for Asia's fourth-largest economy to 3.5 percent from 2.5 percent suggested in May. The KDI warned that growth may slow rapidly if global AI investment contracts due to profitability concerns or South Korean chipmakers lose market share amid heightened competition, and cited uncertainties over U.S. tariff policies and Middle East tensions that could disrupt raw material supplies. It also said growth could exceed expectations if local chipmakers expand production capacity faster than expected.

Separate central bank data showed outstanding household credit reached a record 2,019.8 trillion won (US$1.43 trillion) as of end-June, up 25.9 trillion won from three months earlier, the fastest on-quarter increase since the third quarter of 2021. Household loans rose 24.9 trillion won to 1,891.3 trillion won, with mortgage lending up 12.2 trillion won to 1,190.8 trillion won and non-mortgage loans up 12.8 trillion won to 700.5 trillion won. Credit purchases climbed 900 billion won on-quarter to 128.5 trillion won, slowing from a 1.4 trillion-won rise in the first quarter. Household credit refers to credit purchases and loans extended to households by financial institutions. Bank of Korea monetary and financial statistics team head Kim Sung-jun said the sharp increase came with a rise in housing transactions before a capital gains tax exemption expired, while non-mortgage loans rose in an apparent move to invest in the booming stock market.

Data from the Korea Exchange showed 720 companies listed on the benchmark KOSPI recorded a combined operating profit of 275 trillion won (US$195.2 billion) in the first half, up 348.5 percent from a year earlier. Their combined sales jumped 34.5 percent to 1,070 trillion won, and net profit soared 330 percent to 291.5 trillion won. Excluding Samsung Electronics Co. and SK hynix Inc., the firms' sales grew 6.08 percent, operating profit rose 11.78 percent and net profit gained 25.44 percent. Of the total, 581 firms, or 80.69 percent, were in the black, with electric and electronic companies and precision machinery makers showing solid performances.

Venture investment also hit a record for a first half, according to the Ministry of SMEs and Startups. A total of 8.87 trillion won (US$6.34 billion) was invested in startups in the January-June period, up 54.3 percent from a year earlier and the highest first-half amount since the 7.64 trillion won recorded in the first half of 2022. The ministry attributed the result to big investments of more than 100 billion won concentrated in AI, semiconductor and robotics sectors. Investment in ICT production rose 143.3 percent on-year, electronics, machinery and equipment investment jumped 90.4 percent, and ICT services investment rose 62.2 percent, while gaming sector investment fell 76.3 percent. Startups that attracted investments over the past three years increased employment by more than 11 percent each year, with 60 percent of new hires under 40. The ministry said the venture investment market appears to have entered a phase of full-scale growth and vowed policy support.

Regional industrial data also showed the AI boom's impact. Mining and manufacturing output in North Chungcheong Province surged 27.8 percent in the second quarter from a year earlier, the fastest among South Korea's regions, led by a 70.9 percent jump in semiconductors and electronic components, in part from SK hynix's local production lines. Nationwide mining and manufacturing output rose 2 percent. Output in Gwangju climbed 9.1 percent on a 21.8 percent jump in automobiles, while Seoul, Daejeon and South Jeolla Province saw output fall 5.7 percent, 5.3 percent and 9.2 percent, respectively. Consumer prices rose across all 17 provinces and cities surveyed, with the national average up 3 percent.