South Korea's economic resilience was on full display in October, as its exports defied all odds and surged forward—a surprising feat given the challenges posed by fewer working days due to the Chuseok holiday and the lingering impact of US tariffs. But here's where it gets intriguing: while the overall export growth appeared modest, a deeper dive reveals a tale of two extremes. A handful of sectors, notably semiconductors and vessels, not only thrived but soared to remarkable heights, offsetting the decline in other major exports like cars and steel. This raises a thought-provoking question: Can South Korea sustain its export momentum if this growth remains concentrated in just a few sectors?
Exports in October rose by 3.6% year-on-year, surpassing the market consensus of -0.6% and the revised 12.6% growth in September. While this slowdown might seem concerning, it’s partly attributed to the Chuseok holiday’s impact on working days. Adjusting for this, average daily exports actually jumped by 14.0% year-on-year, compared to a 6.2% decline in September. Year-to-date, exports accelerated to 2.4%, up from 2.2% in the first nine months, suggesting that the underlying momentum remains robust—though narrowly focused. Out of 15 major export categories, only four showed gains. Semiconductor exports, for instance, skyrocketed by 25.4%, fueled by surging demand for high-bandwidth memory (HBM) and DDR5 chips. Vessel exports, including offshore plants, surged by a staggering 131.2%, marking their eighth consecutive month of growth. Petroleum exports also rose for the second month in a row. However, other key sectors like cars, steel, general machinery, and home appliances contracted, partly due to the lingering effects of US tariffs. And this is the part most people miss: the trade agreement concluded between the US and South Korea on October 29 is expected to ease pressure on auto exports, potentially reversing this trend in the coming months.
On the import side, October saw a 1.5% year-on-year decline, compared to 8.2% growth in September. Energy imports dropped by 9.0% due to lower global commodity prices, while non-energy imports inched up by 0.4%. Notably, semiconductor equipment imports rose by 9.5%, and computer imports surged by 32.1%, signaling optimism for continued strong equipment investment in the current quarter.
Looking ahead, the US-Korea trade agreement is poised to alleviate some of the pressure on auto exports, while easing trade tensions between the US and China could further boost Korean exports. Chipmakers are particularly bullish, with major firms already filling their order books for 2026 and anticipating sustained strength in memory prices. Vessel exports are also expected to remain robust, thanks to the high volume of orders placed over the past 2–3 years. As a result, we anticipate modest export growth in 2026, even as US demand is expected to slow.
Incorporating October’s trade outcomes, recent data points to another solid quarter of growth. Positive consumer sentiment, strong equities, and steady exports and equipment investment are expected to offset the reduction in government cash handouts. We maintain a 0.6% quarter-on-quarter, seasonally-adjusted growth outlook for the fourth quarter, with 1.2% year-on-year growth for 2025. Based on a more optimistic view of exports and domestic demand, we’ve revised our 2026 GDP outlook upward from 1.8% to 2.0%.
With growth conditions improving and inflation hovering around 2%, the Bank of Korea’s (BoK) focus should remain on financial market stability. Housing prices are expected to stabilize over the next couple of quarters, while the negative GDP gap persists. This could justify a 25 basis point rate cut in the first half of 2026, though 2.25% is likely to be the terminal rate for this easing cycle. But here’s the controversial part: lower interest rates could reignite the housing market, a major concern for the BoK, which also views 2.25% as the lower bound of the neutral interest rate. Additionally, a normalization of growth in the second half of 2026 could signal the end of the easing cycle.
What do you think? Is South Korea’s export growth sustainable if it remains concentrated in just a few sectors? And how should the BoK balance the risks of lower interest rates with the need to stabilize the housing market? Let us know in the comments below!
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