South Korea Exports Maintain Momentum in July Amid Sustained Chip Boom

South Korea's exports recorded a robust 62.8% year-on-year increase in July, reaching $98.89 billion, fueled by persistent global demand for artificial intelligence (AI)-driven chips. This figure marks the second-highest monthly export performance in the nation's history, slightly below the record $102.25 billion achieved in June. The country has now sustained its export growth momentum for the 14th consecutive month, surpassing market expectations.

The remarkable surge in July's exports was primarily driven by the semiconductor sector. Semiconductor exports soared by a record 179% compared to the previous year, reaching $41 billion, underpinned by increasing global demand for AI servers. Computer exports also contributed significantly, jumping by a massive 404%. This highlights the transformative impact of global spending on data centers and AI infrastructure investments on the South Korean economy. Other sectors also saw gains, with automobile exports rising 7% to $6.2 billion, petroleum product exports jumping 34.1%, and petrochemical product exports increasing 10.3%. Mobile device exports also saw a 51% rise.

This strong export performance positively impacted South Korea's trade balance. The country registered a trade surplus of $30.32 billion in July, marking the 18th consecutive month of surplus. Imports, meanwhile, rose 26.5% year-on-year to $68.56 billion. Geographically, exports to China nearly doubled, increasing 96% to $21.68 billion, while shipments to the United States rose 69% to $17.4 billion. Exports to the Middle East also saw a 25% increase after five consecutive months of decline.

The robust export figures and overall economic growth trend are intensifying the pressure on the Bank of Korea (BOK) to maintain its monetary tightening stance. Earlier this month, the BOK raised its benchmark interest rate by 25 basis points to 2.75%, the first rate hike in three and a half years. The central bank signaled that further rate increases might be necessary to curb inflation. South Korea's economy grew by 0.6% in the second quarter, exceeding initial forecasts.

On the market front, South Korea's benchmark KOSPI index (KS11) experienced a 22% decline in July, its largest monthly drop since 2008, driven by a sell-off in AI-related shares. However, the index staged a record rally on Friday as investment returned to global semiconductor stocks. Leading industry players, such as Samsung Electronics (005930), reported a more than 250-fold increase in chip profit and anticipate global chip shortages to persist until 2028. Its competitor, SK Hynix (000660), also announced strong earnings, though falling short of elevated investor expectations, which fueled concerns about a potential slowdown in AI spending.