South Korea’s early exports pick up on resilient chip demand

South Korea’s early trade data showed exports gaining momentum this month, boosting the outlook for economic growth and suggesting global demand for semiconductors remains resilient.

The value of shipments increased 18.5% from a year earlier in the first 20 days of August, according to data released Wednesday by the customs office. Imports increased by 10.1%, resulting in a trade shortfall of $1.47 billion.

As it is home to two of the world’s biggest memory-chip makers, South Korea has been riding the wave of global demand for artificial intelligence development along with Taiwan by exporting advanced semiconductors to the US and other developed nations.

South Korea’s shipments of semiconductors jumped 42.5% from a year earlier in the first 20 days of August, the customs office data showed, with such devices accounting for 20.3% of total exports.

The tech-led rally in exports has boosted optimism among government officials that the economy will likely grow faster than last year. Meanwhile robust external demand has convinced the Bank of Korea that it can continue its fight against inflation with confidence the economy can withstand its restrictive policy settings.

The BOK meets on Thursday, with almost every economist surveyed by Bloomberg predicting it will hold its benchmark interest rate steady at 3.5%. The BOK is also expected to reaffirm its economic growth forecast for 2024.

“We continue to expect export outperformance of Korea and Taiwan, in light of strong tech exports” in the first half and continuing demand for AI-related products, Goldman Sachs economists including Goohoon Kwon said earlier this month in a note. Still, Asia’s exports might soften if demand from the developed world weakens in the second half, they said.

South Korean firms play an integral role in a wide range of global supply chains, especially in industries including semiconductors, automobiles and batteries, and their financial state can be easily influenced by the foreign exchange rate. The won has been among Asia’s weakest-performing currencies against the dollar this year.

South Korea relies heavily on imports of energy and raw materials to assemble products destined for shipment overseas. Strong exports have had little impact on the moderating trend in domestic prices so far, allowing the BOK to keep its inflation forecast steady.

A strong US economy has helped South Korea offset flagging demand from China, which has yet to recover fully from a housing slump that dealt a blow to consumer activity.

In a sign that demand from the world’s second-largest economy may be recovering, South Korea’s exports to China rose 16.3% from a year earlier in the first 20 days of August, the customs office said. Meanwhile, shipments to the US increased 18% and those to the European Union rose 18.6%.

The share that China, the US and the EU together hold in South Korean exports amounted to 47.4%, the office added.