South Korea's export momentum remained robust in July, with growth rates decelerating from June's peak but still significantly exceeding market forecasts. The semiconductor sector continued to act as a core driver, providing strong support for the economy and reinforcing the central bank's rationale for tightening monetary policy further.
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. This was below June's revised nearly 50-year high of 70.7%, but above the 59.5% median estimate from a Wall Street Journal survey of 11 economists. After adjusting for working days, exports grew 69.6% year-on-year. Imports increased 26.5% to $68.6 billion, narrowing the trade surplus to $30.3 billion, down from June's revised $36.1 billion.
In terms of total export volume, July's $98.9 billion marked the second-highest monthly figure in South Korean history, trailing only June's record $102.2 billion. Semiconductor exports surged 178.8% year-on-year to $41 billion, breaking the $40 billion threshold for a second consecutive month. This performance has prompted economists to revise their expectations for the Bank of Korea's interest rate path. According to Bloomberg, most economists now predict another rate hike by October, with a minority suggesting it could come as early as the August 27 board meeting.
Robust chip demand pushes export volume to second-highest. July's export volume continued June's historic trend, ranking as the second-highest monthly figure ever. Excluding semiconductors, other categories grew by about 26% year-on-year. Industry Minister Kim Jung-kwan noted that 19 of South Korea's 20 major export categories posted positive year-on-year growth, indicating ongoing diversification of the export structure. Among other key categories, auto exports grew 7% to $6.2 billion, driven by global demand for hybrid and other eco-friendly vehicles; petroleum product exports rose 34.1% to $5.7 billion, boosted by higher oil prices; petrochemicals increased 10.3% to $4.2 billion; and mobile device exports climbed 51% to $1.8 billion, supported by steady sales of high-end smartphones like the Galaxy S26 series.
By destination, exports to China grew 96.2% to $21.7 billion, driven by chips, non-ferrous metals, and petroleum products. Exports to the U.S. increased 68.7% to $17.4 billion, driven by investment projects from major tech companies in AI data centers. Exports to the ASEAN region rose 73.7% to $18.8 billion, while those to the EU grew 55.7% to $9.4 billion.
AI infrastructure investment drives semiconductor shortage. The escalating global investment in AI infrastructure is causing a severe shortage of memory chips, with supply growth lagging far behind demand expansion. Samsung Electronics Co., Ltd. stated on Thursday that it expects the semiconductor shortage to persist until 2028. The company's April-to-June earnings report showed a 14-fold surge in net profit year-on-year, with revenue and operating profit both hitting record highs. SK Hynix also reported a 13-fold increase in net profit to a historic peak during the same period, with revenue and operating profit also setting records, driven by strong demand for high-end chips. Both companies maintained an optimistic outlook for the remainder of the year. Exports of computer-related products surged 404% year-on-year, further confirming the widespread impact of AI-related demand.
Strong export data supports further tightening. The trade data provided new support for the Bank of Korea's monetary policy stance. The central bank raised its base rate by 25 basis points to 2.75% last month, the first hike since early 2023. Governor Shin Hyun Song later stated that policymakers still see a need for further rate increases, but the timing and pace will depend on inflation, economic growth, and financial stability conditions. On inflation, the July consumer price index rose 3.2% year-on-year, with core inflation at 2.5%, indicating resilient underlying price pressures. On growth, the South Korean economy expanded 0.6% quarter-on-quarter in the second quarter, exceeding economist expectations. The government forecasts full-year economic growth of 3% this year, higher than the central bank's and International Monetary Fund's projections. Shin noted that the central bank's May forecast of 2.6% growth now appears "clearly too low," and it will be "significantly" revised upward in August, citing stronger-than-expected exports, investment, and consumption.
Despite the positive July data, external risks to South Korea's trade have not dissipated. Minister Kim stated in a release that rising protectionism in major economies and ongoing geopolitical tensions in the Middle East are the main headwinds facing South Korea's exports. He said the government will closely monitor market dynamics for key export goods and use a variety of policy tools to help South Korean companies navigate the changing global trade environment, including tariff and non-tariff barriers.
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