South Korea's July Export Growth Slows but Beats Expectations; Chip Exports Surpass $40 Billion, Supporting Trade Surplus

South Korea's exports maintained strong momentum in July. Although the growth rate retreated from June's peak, it significantly exceeded market expectations. Semiconductors continued to serve as the core driver, providing solid support for the South Korean economy and further strengthening the rationale for the Bank of Korea to continue tightening monetary policy.

According to preliminary data released by the Ministry of Trade, Industry and Energy on Saturday, July exports rose 62.8% year-on-year to $98.9 billion, lower than the revised 70.7% growth in June—the fastest pace in nearly 50 years—but higher than the median expectation of 59.5% from a Wall Street Journal survey of 11 economists. On a working-day-adjusted basis, exports increased by 69.6% year-on-year.

Imports for the month grew 26.5% to $68.6 billion, narrowing the trade surplus to $30.3 billion, down from the revised $36.1 billion in June. In terms of total export scale, the $98.9 billion recorded in July was the second-highest monthly figure in South Korea's history, trailing only the record $102.2 billion set in June.

Semiconductor exports surged 178.8% year-on-year to $41 billion, exceeding the $40 billion mark for the second consecutive month. This performance directly prompted economists to raise their expectations for the Bank of Korea's rate hike path. According to Bloomberg, most economists expect the central bank to raise rates again before October, while a minority believe the hike could be brought forward to the board meeting on August 27.

Strong Chip Demand Drives Export Volume to Second-Highest Level

July's export volume continued the historical breakthrough seen in June, with $98.9 billion ranking as the second-highest monthly export figure in South Korea's history. Excluding semiconductors, exports in other categories combined grew approximately 26% year-on-year. Minister of Trade, Industry and Energy Kim Jung-kwan pointed out that 19 of South Korea's 20 major export categories achieved positive year-on-year growth, indicating a continuous improvement in the diversification of the export structure.

Among other major export categories, automobile exports grew 7% to $6.2 billion, driven by global demand for hybrid and other eco-friendly vehicles. Petroleum product exports were boosted by rising oil prices, increasing 34.1% year-on-year to $5.7 billion. Petrochemical products grew 10.3% to $4.2 billion, while mobile device exports rose 51% to $1.8 billion, with robust sales of high-end smartphones such as the Galaxy S26 series.

From the perspective of export destinations, exports to China increased 96.2% year-on-year to $21.7 billion, mainly driven by chips, non-ferrous metals, and petroleum products. Exports to the United States grew 68.7% to $17.4 billion, driven by AI data center investment projects by large technology companies. Exports to the ASEAN region rose 73.7% to $18.8 billion, and exports to the European Union increased 55.7% to $9.4 billion.

AI Infrastructure Investment Drives Persistent Chip Shortage

The continuous increase in global AI infrastructure investment is causing a severe shortage of memory chips, with supply growth lagging far behind demand expansion. Samsung Electronics stated on Thursday that it expects the semiconductor shortage to persist until 2028. Samsung's financial results for April to June showed that net profit for the quarter surged 14-fold year-on-year, with both revenue and operating profit hitting record highs.

SK Hynix also saw its net profit surge 13-fold year-on-year to a historic peak during the same period, with both revenue and operating profit setting new records, driven primarily by strong demand for high-end chips. Both companies maintained an optimistic outlook for the remainder of the year. Exports of computer-related products soared 404% year-on-year, further confirming the widespread penetration of AI-related demand.

Strong Export Data Supports Further Monetary Tightening by the Central Bank

The aforementioned trade data provides new support for the Bank of Korea's monetary policy stance. Last month, the Bank of Korea raised the base interest rate by 25 basis points to 2.75%, marking its first rate hike since early 2023. Governor Shin Hyun Song subsequently stated that policymakers still believe further rate hikes are necessary, but the timing and pace will depend on inflation, economic growth, and financial stability conditions.

Regarding inflation, the Consumer Price Index rose 3.2% year-on-year in July, with core inflation remaining at 2.5%, indicating that underlying price pressures remain resilient. In terms of growth, the South Korean economy expanded 0.6% quarter-on-quarter in the second quarter, exceeding economists' expectations. The South Korean government expects full-year economic growth of 3% this year, higher than the forecasts of the central bank and the International Monetary Fund. Shin Hyun Song stated that the central bank's May growth forecast of 2.6% now appears significantly low and will be "substantially" raised in August, citing stronger-than-expected exports, investment, and consumption.

Despite the overall positive data in July, external risks facing South Korean trade have not dissipated. In his statement, Kim Jung-kwan pointed out that the rise of protectionism in major economies and ongoing geopolitical tensions in the Middle East are the main headwinds facing South Korean exports.

He stated that the government will closely monitor market dynamics for major export commodities and comprehensively utilize various policy tools to assist South Korean enterprises in coping with changes in the global trade environment, including tariff and non-tariff barriers.