Korea's chip collapse as bad as in 2008 and 2001: KDI

Containers stacked at a port in Incheon on March 31 [NEWS1]

The chip business is collapsing like it’s 2008, with numbers falling as fast as they did during the global financial crisis.

Chip production plunged 41.8 percent in February as exports to China fell due to the weak global economy, according to the Korea Development Institute (KDI). That is near the minus 42.3 percent of July 2001 and the minus 47.2 percent of December 2008.

The capacity utilization rate is down 49.1 percent from the previous peak, steeper than the negative 44.7 percent in July 2001 and the negative 48.0 percent in December 2008.

“The decline of the semiconductor industry, which accounted for 18.9 percent of exports in 2022, is a key element in the weak economy,” the report read.

Korea’s chip export in the first quarter was down 40 percent.

The country posted a current account deficit for the second straight month in February as chip exports remained weak. Chip exports plunged 41.5 percent in February, and exports to China dropped 24.3 percent in the same period.

Korea’s chip industry started to decline rapidly after peaking in March 2022. Samsung Electronics said Friday it is cutting chip production “to a meaningful degree,” a dramatic about-face after it insisted it would not reduce semiconductor output despite the aggravated market conditions and the retrench of competitors.

Investment in plant and equipment remained weak.

Autos and machine equipment did well.

Car production jumped 26.2 percent in February, while machinery equipment production growth was 8.6 percent.

Services have improved from a rise in travel.

Accommodation and food services rose 22.5 percent. Output for recreation activities, including arts and sports, jumped 32.1 percent.

The Composite Consumer Sentiment Index, which measures the level of optimism consumers have about the economy, inched up to 92.0 percent in March from 90.2 a month earlier.

Inflation pressure has been reduced from a fall in imported prices, but uncertainties remain following OPEC+ producers unexpectedly announcing an oil production cut on April 2, KDI noted.

The oil producers announced oil output cuts of more than a million barrels per day, which analysts said would cause a rise in prices.

WTI oil price reached $80.70 on Thursday, up from around $67 in March.

Inflation in March was 4.2 percent, down from 4.8 percent a month earlier. But core inflation, excluding food and energy, remained unchanged at 4.0 percent.

Despite the uncertainties, bond experts project the Bank of Korea’s rate-setting committee to hold rates unchanged at the meeting Tuesday.

A total of 83 percent of survey participants expect the Monetary Policy Board to keep the rate steady at 3.50 percent, according to Korea Financial Investment Association Friday.

A hundred people participated in the survey from March 29 through April 3.

Expectations for the Fed to end rate increases amid instability in the financial markets is the reason for their forecast, the association said. The remaining 15 percent expected a 25 basis point increase, 1 percent a 50 basis point and 1 percent a 75 basis point increase.

BY JIN MIN-JI [jin.minji@joongang.co.kr]