Global economic "canary" exports have grown for two consecutive months, and chip demand has bottomed out

Driven by a sharp rebound in demand for chip products, the latest export data released by South Korea, regarded by the market as the "canary" of the global economy, achieved sustained recovery in November, boosting market optimism about the country's economic prospects and global trade prospects next year. As a benchmark for global demand levels, South Korea's export data is crucial to global investors. South Korea is also the first major global export economy to publish monthly trade data, providing investors with important clues to understand the health of global demand.

Data released by South Korea’s trade ministry on Friday showedSouth Korea's exports in November increased by 7.8% compared with the same period last year. Economists generally expected a growth of 5%. The overall import scale fell by 11.6%, making the trade surplus reach 3.8 billion US dollars. Among them, driven by the global boom in generative AI,South Korea's exports of chip products such as DRAM and NAND increased by 12.9% year-on-year, achieving positive growth for the first time in 16 months, while exports of automotive products increased by 21.5% year-on-year.

South Korea's trade data is a key leading indicator of global trade activity because South Korea exports a variety of products, including high-end machines, monitors and refined oil products that permeate global supply chains, as well as products that are critical to the country's GDP.For chip products such as DRAM and NAND, South Korea is home to top players in the global chip industry such as Samsung Electronics and SK Hynix. South Korea's economic prospects in 2024 also depend on the continued strength of export growth. The Bank of Korea lowered its GDP forecast for next year by 0.1 percentage points to 2.1% on Thursday.

The logic of chip recovery has been strengthened: South Korea’s demand has bottomed out! The recovery may become more intense next year

Chip demand drives South Korea's exports to rebound, boosting South Korea's trade prospects

Jang Woo-ae, an analyst from South Korea's IBKE Conomic Research Institute, said: "The dominant role of chip products in South Korea's export data gives people an inkling that global trade conditions will be better next year than this year. This year, mainly automobile exports will help ease the export decline. “But as demand for electric vehicles weakens under the pressure of high interest rates and global economic growth slows, the improvement trend in South Korea’s exports next year may be gradual rather than rapid. "

The main challenges facing South Korea's export prospects include the continued slowdown in global economic growth as major central banks around the world continue to use hawkish monetary policies to curb inflation. Another major risk factor is the ongoing conflict between Russia and Ukraine, as well as the geopolitical conflict between Israel and the Palestinian Hamas organization. These conflicts may continue to push up oil prices and inflation, thereby dampening global consumer confidence.

"Stronger-than-expected global economic growth and easing geopolitical tensions will improve economic growth prospects for the export-reliant South Korean economy in the quarter," the OECD said in its latest outlook.

"South Korea's November export data continues to exceed expectations, which will add strong impetus to economic growth in the fourth quarter. Stronger exports, supported by the long-awaited pickup in chip shipments, may also boost investor confidence, which will also be another boost to the South Korean economy." Hyosung Kwon, economist at Bloomberg Economics, said.

The OECD predicts that South Korea's economy will grow by 2.3% next year, higher than the Bank of Korea's forecast. The Bank of Korea has kept its key interest rate unchanged for nearly a year as it seeks to keep economic growth momentum in check while curbing inflation.

The continued rise in prices of chip products such as DRAM and NAND memory chips, as well as high-end HBM, has significantly boosted South Korea's export data, while the growth in demand for products such as automobiles, high-end machinery and wireless communication products has also led to a rebound in exports.A report released by IDC, a well-known research institution, shows that following a rare 3.5% contraction this year, global smartphone shipments are likely to grow by 3.8% next year, and core products such as memory chips exported by South Korea are crucial to smartphone production. Statistics show that Samsung Electronics and SK Hynix together occupy more than 50% of the global NAND flash memory market.

From the perspective of TSMC, the world’s largest chip foundry,The turning point of the chip market may be in the fourth quarter, and demand in the field of artificial intelligence will be a booster for its long-term growth. The more important information is that TSMC's most important customers, especially AI, PC chip and smartphone chip foundry customers, have accepted the proposal to increase prices next year, which to a certain extent implies that the upward cycle of the chip industry's prosperity next year has basically been established.

Judging from the silicon shipment data that best reflects overall chip demand, silicon wafer shipments are expected to rebound significantly next year. SEMI (International Semiconductor Industry Association) pointed out in its latest annual silicon shipment forecast report that global silicon wafer shipments are expected to decline by 14% in 2023, from a record 14565 million square inches (MSI) in 2022 to 12512 million square inches. However, SEMI expects global silicon wafer shipments to rebound strongly in 2024 as wafer and semiconductor demand recovers and inventory levels normalize.

South Korea's exports are deeply dependent on U.S. consumer demand

Still, some economists have reason to be cautious. Some economists predict that global economic activity, especially U.S. consumer spending, will weaken next year, which will weaken demand for important export products from countries such as South Korea in important markets such as the United States. A forecast released by Bank of America shows that U.S. consumer spending is likely to slow as the advantages of the fiscal investment plan fade away. The Federal Reserve's latest Beige Book also shows that the downward trend in discretionary spending in the United States may have begun.

"A further slowdown in global demand may dampen South Korea's export data in the coming quarters," economists at BMI, a unit of Fitch Solutions, said. "However, beyond that, we believe that easing monetary policy will pave the way for a pick-up trend in global trade, from which South Korea's export-oriented economy will benefit overall."

Specific export data shows, South Korea's exports to China in November fell slightly by 0.2% compared with the same period last year, but continued the improvement trend. South Korea's exports to the United States increased for four consecutive months during the same period, which once again showed that consumer demand in the world's largest economy remains resilient.