Negative Growth Expected for Semiconductors
Even Korea’s six main industries that buttress the national economy are shaking from their foundations due to a rise in the exchange rate, high interest rates and soaring raw material prices.
Many experts are concerned that Korean companies in the so-called six core sectors -- semiconductors, electric vehicles, batteries, displays, steel, and shipping –- will probably suffer negative growth or losses due to a sharp rise in raw material prices, the Korean won's depreciation against the U.S. dollar, new protectionism in the United States, a slowdown in the growth of the global economy, in particular the Chinese economy, and monetary tightening.
Semiconductor exports, which account for 20 percent of Korea’s exports, are highly likely to decrease in the second half of the year. Samsung Electronics’ third-quarter operating profit is estimated at 12.8 trillion won, down 18.5 percent from the same period of 2021 and 8.7 percent from the previous quarter. According to forecasts, Samsung Electronics’ third-quarter operating profit will shrink from the previous year for the first time in about three years since the fourth quarter of 2019. SK Hynix’s third-quarter operating profit is projected at 2.595 trillion won, a whopping 37.8 percent drop from last year.
The negative growth of Korea’s semiconductor exports will result in an increase in trade deficit. The annual trade deficit in 2022 will reach US$28.1 billion, putting an end to the streak of trade surplus for 13 consecutive years. The US$28.1 billion trade deficit is the largest in history, surpassing a US$13.3 billion deficit in 2008 amid a financial crisis and a US$20.6 billion deficit in 1996 when the IMF bailed out the Korean economy.
Korean electric vehicles must clear the hurdles of the U.S. Inflation Reduction Act (IRA). Hyundai Motor Co. and Kia Corp. will lose price competitiveness against such competitors as General Motors (GM), Ford, and Stellantis if the establishment of their electric vehicle plants in the United States are delayed. The European Union (EU) and China are providing subsidies in favor of their own companies. China exported 340,000 eco-friendly cars (including Tesla cars) until August this year, and the volume is equivalent to Korea’s eco-friendly car exports during the same period. Chinese automakers' share of the European market soared from 19 percent in 2017 to 25 percent this year, which means that the position of Korean automobiles has been weakened.
The same goes for Korean batteries. In the first half of this year, CATL’s sales in China hit 17 trillion won, which is over two trillion won more than the combined sales of the three Korean battery makers -- LG Energy Solution, SK On, and Samsung SDI.
China claimed the top spot in the overall display market by overtaking Korea in the liquid crystal display (LCD) market and is focusing on overtaking Korea in the organic light emitting diode (OLED) sector.