Domestic Demand Collapses Amid Chip Boom, Young People at Risk of Becoming a 'Lost Generation'

Director Cho described the Korean economy as an "illusion created by semiconductors." Macro indicators such as growth and exports are rising, yet across domestic demand the refrain "it's hard to make ends meet" dominates.

When many economic actors are asked whether the economy is better than before, a large majority raise their hands to say it is harder. Extreme concentration, what he calls hyper-polarization, means aggregate figures look good while the quality of everyday life is deteriorating.

This diagnosis has held for roughly a year.

Other major export goods are weakening at the same time as semiconductors. Automobile exports fell 5.5% from a year earlier in September, and their share of total exports has halved.

Displays fell 9.5% from a year earlier, nearly 10%. Petrochemicals turned positive after March, but the main driver was price increases rather than higher volumes, amid geopolitical tensions.

Shipbuilding dropped sharply by 45.9% in August, then rebounded 29.9% in September, showing wide volatility.

The 15 major export items announced by the government include none of cosmetics, food, or culture. K-brands are growing fast, but they are still not mass-scale.

Non-government institutions and academics identify polarization as the key word for next year's economic outlook. Among the general public, however, no consensus is visible. Many argue the semiconductor boom is natural, others say it is a global phenomenon, and still others insist that whichever side is doing well should be supported.

During COVID and the Iran war there was no disagreement, so government policy came quickly and forcefully. Without social consensus on the current polarization problem, sound policy is expected to be hard to produce.

Economic growth is rising, but the economy as individuals experience it is worsening. As polarization deepens, its effects across lending, employment, and consumption may fall heavily on young people.

Consumer sentiment shows signs of recovery, but construction and consumer goods, the foundations of domestic demand, remain weak.

Institutions that issue forecasts later are steadily raising their growth estimates. Those that first projected 3% are successively revising up toward nearly 4%.

Director Cho also expects Korea's growth this year to exceed 3%. Exports lead the way, but their contribution to growth is showing a different pattern from the past.

Of exports, private consumption, and facility investment, only exports are strong, while domestic demand remains relatively weak.

Comparing the 2017 Q3 semiconductor supercycle with today shows very different growth drivers. Back then, export contribution was 2.2%, private consumption 1.6%, and facility investment 1.6%, a relatively balanced mix.

In Q1 this year, export contribution was 5.4%, private consumption 1.3%, and facility investment 0.4%, extremely skewed toward exports. Export contribution is more than double, while private consumption falls well short and facility investment is only a quarter of the level.

Domestic demand is rising, but unlike past booms the structure is not even, and that is the problem.

Director Cho avoided a clear answer on the outlook for the semiconductor industry. He explicitly declared that he is not a true expert in this field.

He warned that trusting the words of pseudo-experts is dangerous.

Payment processors (PG companies) and large convenience store chains track spending by industry and region down to each transaction. Their field data is closer to real time than official statistics, so it reflects the economic situation more accurately.

On the ground in the first half of 2024, the ratio observed is 1 to 9. In other words, only the top 10% are enjoying a boom while the other 90% are struggling badly.

Official statistics such as GDP, retail trends, and exports are published one to two months late, so they diverge widely from reality.

A restaurant owner near Hynix said business has dried up as company dinners have shrunk. Young employees spend their pay on buying homes, repaying loans, overseas travel, and investing in stocks.

People with seed money are rushing into home purchases, which has even spilled over into regional housing transaction restrictions.

The gap in retail sales growth by format is extreme. Department store sales growth is close to 10% from a year earlier.

Luxury goods sales growth reaches 40% to 80% by company-reported figures. By contrast, marts, which ordinary households frequently use, recorded a negative growth rate of nearly -10% from a year earlier.

These figures show how severe consumption polarization in the economy has become.

Director Cho shifted the key diagnostic term from 'illusion' and 'hyper-polarization' to a 'Volatile Economy.' Having to bring back last year's keyword is a bad sign, meaning the situation has not improved.

His diagnosis is that the Korean economy has entered a state of very high volatility. Semiconductors make up half of market capitalization in a highly volatile sector, and anxiety over the AI investment cycle also persists.

This shows that uncertainty in economic forecasts is growing.

The government is collecting a lot of tax, setting up a future response fund, and pushing an expansionary budget plan for next year.

In other words, next year's growth could vary greatly depending on the scale of government fiscal spending.

The number of young people is itself shrinking, so employment is falling in step. The youth population dropped by several hundred thousand over the past year, and employment fell at a similar rate.

While the total population is roughly flat or slightly rising, employment among middle-aged and older workers has grown considerably, whereas young workers are moving in the opposite direction. Even the objective figures show that the job situation is difficult right now.

As domestic chip and AI companies expand their factories, investment in national infrastructure such as energy, water resources, and power transmission grids becomes essential. At the same time, fiscal support is needed for groups that are struggling now.

The country faces a dilemma: it must secure competitiveness in new growth industries while also protecting current living standards. How the limited fiscal capacity is allocated will shape the economy's future.

Balancing fiscal policy for young people with investment in industrial foundations is especially important. Director Cho's position is that serious deliberation on this is needed.