South Korea chip output jumps in sign of returning global demand

SEOUL - South Korea’s semiconductor industry recorded the largest gains in years in both production and shipments, underscoring a revival of technology momentum that bodes well for the nation’s economic outlook in 2024 and for the global tech sector.

Chip production jumped 42 per cent in November from a year earlier, the most since early 2017, while shipments soared 80 per cent, the biggest gain since late 2002, according to data released on Dec 28 from the national statistical office. Inventories expanded by 36 per cent in the smallest rise since February.

The numbers suggest South Korea’s most important industry is roaring back from a slump that weighed on the economy for more than a year and add to optimistic signals for chipmakers such as Samsung Electronics and SK Hynix, two of the country’s biggest companies. The figures also suggest a nascent recovery in global tech sector demand may be gaining momentum.

South Korea’s trade-reliant economy has muddled through 2023 amid suppressed demand for semiconductors and is forecast by the central bank to have expanded 1.4 per cent in 2023, less than the 2.6 per cent in 2022, under higher interest rates, an economic slowdown in China and geopolitical risks.

The latest chip data suggest the nation’s tech manufacturers may help support growth. The strength of semiconductor makers drove a better-than-expected 5.3 per cent expansion in the nation’s industrial output from a year earlier in November. Demand for high-performance semiconductors has in particular helped the chip and machinery industries, the Finance Ministry said in a statement following the data.

The Bank of Korea sees the economy expanding 2.2 per cent in 2024 on the back of exports gaining further strength after they returned to growth in October in 2023. Memory-chip prices are starting to bounce back while emerging technologies such as artificial intelligence add to demand.

Mr Shannon Nicoll, associate economist at Moody’s Analytics, said in a note: “We expect industrial production to pick up as global appetites for South Korean goods grows and as the local headwinds of high inflation and interest rates ease.”

Risks for the South Korean economy include global economic growth likely slowing in 2024 with China continuing efforts to shore up its economy. United States consumers may also start to feel a pinch from prolonged tightness in interest rates, while global commerce continues to face the threat of protectionism. BLOOMBERG