Bank of Korea: "High-end Semiconductor Demand Remains Strong... Export Growth to Continue" [Q&A]

November International Balance of Payments (Preliminary) Press Briefing
"Current Account Balance Expected to Exceed This Year's Forecast"
"Exports Growth Rate to Slow but Increase Trend Will Continue"
"Exchange Rate Impact Different from Past... Quality Competitiveness More Important"

On the 8th, the Bank of Korea stated regarding this year's export outlook, "Overall, the export growth rate is expected not to be lower than that of 2024," but also assessed that "since steady demand for high-spec, high-performance semiconductors is expected to continue, the export growth trend will be maintained."

Song Jae-chang, head of the Bank of Korea's Financial Statistics Department, explained at a press briefing held after the announcement of the 'November Balance of Payments (provisional)' that regarding future export prospects, "In the case of semiconductors, demand for high value-added, high-spec semiconductors remains steady, so the export growth trend is expected to continue," adding, "However, there are uncertainties in the trade environment, and since the main item, semiconductors, must compete with China, and considering the base effect from the period when semiconductor exports were strong, the growth rate will slow down."

He evaluated that this year's current account surplus will exceed the initial forecast of $90 billion. He said, "Looking at the trade balance based on customs clearance data from the Ministry of Trade, Industry and Energy, the surplus increased in December compared to November," adding, "It is expected that a considerable surplus will be recorded in December, mainly in the goods balance, and the size of the current account surplus is expected to exceed the $90 billion forecast by the Research Department."

Regarding the recent impact of the high exchange rate situation on the current account, he said, "Rather than the exchange rate fluctuations themselves, future policy changes by the Trump administration and economic changes in major export countries will have an impact," and assessed, "Unlike in the past when exports were boosted by exchange rates, we need to focus on quality competitiveness, brand competitiveness, and technological competitiveness."

The following is a Q&A with Director Song.

- What is the outlook for the current account flow in December last year and this year? Is it possible to achieve the annual current account forecast of $90 billion?

▲ It is expected that a considerable surplus will be recorded in December, mainly in the goods balance. According to the trade balance based on customs clearance data from the Ministry of Trade, Industry and Energy, the surplus increased in December compared to November. Based on this, the goods balance is expected to show a favorable level. The size of the current account surplus is expected to exceed the $90 billion forecast by the Research Department.

- Samsung Electronics posted an 'earnings shock' in the fourth quarter. What is the outlook for semiconductor exports? Is there a possibility that the export growth rate will turn negative compared to the previous year?

▲ In the case of semiconductors, demand for high value-added, high-spec semiconductors remains steady. The export growth trend is expected to continue. Customs clearance exports in December also rebounded due to the year-end export performance closing. Overall, in 2025, the export growth rate is expected not to be lower than that of 2024. Due to uncertainties in the trade environment, competition with China for the main item, semiconductors, and the base effect from the period when semiconductor exports were strong, the growth rate will slow down. However, steady demand for high-spec, high-performance semiconductors is expected to continue, so the export growth trend will be maintained.

▲ From the perspective of foreign securities investment, Samsung Electronics showed signs of a slowdown in operating performance in the second half of last year. Semiconductor investment sentiment also somewhat weakened. Since August last year, foreign stock investment showed a selling trend centered on specific stocks. In December, domestic listed stocks and bonds recorded a selling trend, but the net stock sales volume decreased compared to November. The selling trend on specific stocks also somewhat eased. This part needs to be monitored, but it is premature to conclude that the situation will deteriorate significantly.

- The export growth rate slowed to 1.2% year-on-year in November compared to October. What is the reason?

▲ Exports have risen significantly since turning positive in October 2023. Considering last year's base effects, the export growth rate has declined. IT items such as semiconductors and information and communication devices continue to show steady demand and maintain the existing growth trend. Among non-IT items, notable decreases were seen in petroleum products and passenger cars. Petroleum products prices fell due to the stabilization of international oil prices since September. Passenger cars experienced production disruptions due to parts suppliers' strikes from October to early November, which depleted parts inventories held by finished car manufacturers. Some production lines were also affected by weak demand for electric vehicles. As a result, non-IT item exports showed a slight decline.

- What is the background for the decrease in imports?

▲ Imports have recorded negative growth for three consecutive months due to the decline in crude oil import prices caused by falling international oil prices and the drop in prices of petroleum products such as naphtha. On the other hand, capital goods increased, mainly semiconductor manufacturing equipment. In terms of consumer goods, passenger car imports decreased significantly. At the end of November, heavy snowfall delayed customs clearance of goods, and overall consumer sentiment deterioration also seemed to have an impact.

- What impact will the inauguration of the Trump administration have on the current account?

▲ The Trump administration is set to take office on the 20th. It has announced plans to impose universal tariffs after inauguration. Tariffs are planned for Mexico and Canada, which may affect production of companies operating in those regions. The primary income balance from these companies may decrease. Exports of domestic material companies exporting intermediate goods to Canada and Mexico may also decline. The impact of tariffs on China needs to be observed further. Depending on China's influence, our exports to China may decrease. Currently, the relationship between China and South Korea is shifting from complementary to competitive, so we need to monitor what kind of spillover effects we might experience. Overall, if protectionist policies strengthen and global trade conflicts intensify, global trade may shrink and trade policy uncertainty may increase. We need to closely monitor and respond to policy changes in terms of timing and intensity. This is likely to be reflected in the economic outlook in February.

- Exports to the U.S. and China were positive in October but turned negative in November. What is the reason?

▲ Exports to the U.S. have increased significantly due to strong consumption and investment expansion. Regarding the trade balance with China, there has been economic slowdown in China, increased self-supply of parts, and sluggish IT industry conditions in China until the year before last. However, exports to China, centered on semiconductors, are showing signs of recovery. In November, China's consumption sentiment was weak, leading to lower sales mainly of information and communication devices. China's domestic demand recovery remains slow, causing a decrease in exports of chemical products. The U.S. shows two trends: first, exports of semiconductors and information and communication devices increased significantly; however, the passenger car sector experienced an electric vehicle chasm phenomenon, and machinery and precision equipment faced some difficulties in facility and construction investments.

- Is there a possibility that the travel balance deficit will widen in December?

▲ The travel balance deficit in November slightly widened compared to October due to a decrease in Chinese tourists and inbound visitors. In December, the deficit is expected to increase as the number of outbound travelers rises due to year-end factors and the start of winter vacation. Recent political instability may somewhat suppress inbound and outbound numbers, but the year-end and winter vacation effects are expected to have a greater impact.

- The exchange rate rose significantly in December. What impact will this have on December exports?

▲ The recent trend of exchange rates differs from the past. Traditionally, for Korean exporters, a rise in the won-dollar exchange rate is an opportunity to sell at higher prices. For those importing raw materials, it increases production costs. Traditionally, this had positive effects on exports and negative effects on imports. Recently, as production facilities have moved overseas, the exchange rate elasticity of exports has weakened compared to the past. Korea's export competitiveness has shifted from price to technology, so rather than exports benefiting from exchange rates as before, the focus should be on quality competitiveness, brand competitiveness, and technological competitiveness. One characteristic of the recent exchange rate rise is the strength of the dollar. Therefore, global investment and global import demand may negatively affect our exports. Rather than exchange rate fluctuations themselves, future policy changes by the Trump administration and economic changes in major export countries will have an impact. This needs to be observed carefully.

- If the exchange rate level rises to the 1,400 won range, will there be almost no effect or impact on exports?

▲ From the current account perspective, it is more important to focus on how conditions change due to the global environment and policies of each country rather than a specific exchange rate level itself. The exchange rate level itself is not as important as in the past.

- How will imports be affected at the exchange rate level of around 1,400 won?

▲ Import amounts will inevitably increase due to the exchange rate. For exporting companies, this may act as a cost burden.

This content was produced with the assistance of AI translation services.