South Korea's exports continued their robust expansion in May, reinforcing the central bank's increasingly hawkish policy tilt as sustained demand for semiconductors outweighed rising geopolitical and inflationary risks.
Data released Monday by the Ministry of Trade, Industry and Energy showed exports, adjusted for working-day differences, soared 60.7% year-on-year in May. Imports grew by 20.8%, resulting in a trade surplus of $26.9 billion for the month.
On an unadjusted basis, exports surged 53.2% from a year earlier, marking the largest monthly increase since 1984. Semiconductors remained the primary driver of export growth, fueled by robust global investment related to artificial intelligence and data centers.
Semiconductor exports recorded a record-breaking 169.4% year-on-year increase. Exports of computer-related products and petroleum products also contributed significantly, rising by more than 290% and 46.6%, respectively.
The latest figures indicate the South Korean economy continues to demonstrate strength. After a contraction in late 2025, the economy rebounded strongly at the start of this year. Buoyed by semiconductor exports and corporate investment, first-quarter GDP grew 1.7% quarter-on-quarter, the fastest pace since 2020.
The data also provides support for the Bank of Korea's hawkish stance. Policy signals from the central bank last week revealed that two board members voted for an interest rate hike, with the latest guidance also leaning toward raising borrowing costs.
Governor Shin Hyun Song stated that, considering inflationary pressures from rising oil prices, a weaker won, and economic resilience, a rate hike would have been justifiable at last month's meeting.
Economist Hyosung Kwon noted, "South Korea's accelerated export growth in May highlights the resilience of external demand despite uncertainties such as the Iran conflict... The data suggests upside risks to second-quarter economic growth, further strengthening the rationale for the Bank of Korea to begin raising rates in July."
The Bank of Korea has raised its economic growth forecast for this year to 2.6% from a previous 2.0%, reflecting the semiconductor-led upcycle. Governor Shin previously suggested the chip boom may prove more enduring than many expect, with rising industry profits gradually transmitting to the broader economy through stronger tax revenue, consumption, and investment.
"Exports are likely to remain strong at least until the end of this year into early next," said BNP Paribas economist Jeeho Yoon. "Market sentiment appears to be shifting toward the view that the semiconductor upcycle will last longer."
The export boom is increasingly spilling over into broader financial conditions. Economist Hyosung Kwon recently pointed out that rising profits and expanded bonus payments in the semiconductor sector could flow into the real estate market, stock market, and push up wage growth, thereby exacerbating inflation and financial stability risks.
By destination, exports to China grew 81%, while exports to the United States increased 59%, reflecting strong demand driven by the global AI fervor. Exports to ASEAN (Association of Southeast Asian Nations) rose 58.4%, with key export categories like semiconductors, fuels, and displays all posting gains.
Korea Fund Inc (NYSE: KF)
The fund, which provides exposure to the South Korean equity market, may see investor interest influenced by the country's strong export performance and robust economic indicators. The semiconductor-led export surge and the central bank's potential policy tightening are key factors shaping the investment landscape for South Korean assets.