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By Park Hyong-ki
The economy has become more vulnerable as it has been supported only by the lone growth engine, exports.
What is of more concern is that semiconductors alone have driven export growth.
Analysts are voicing concern that given the chip industry is highly cyclical, semiconductor exports are expected to lose growth momentum in the coming quarters stymieing any economic rebound.
Exports grew 6.2 percent to about $51.9 billion in July from a year earlier, despite the trade dispute between the United States and China, according to the Ministry of Trade, Industry and Energy.
This marks the second highest after Asia's fourth largest economy posted $5.5 billion in exports in September last year.
This is all thanks to semiconductors led by Samsung Electronics, SK hynix and hundreds of chip equipment and parts makers in the capital-intensive and supply-driven industry.
Exports of semiconductors reached $10.4 billion in July, up about 32 percent from a year ago. Chips accounted for more than 20 percent of total exports on global demand for cloud computing servers, smart devices, displays and research for artificial intelligence. They take up nearly 60 percent of all information and technology products shipped abroad.
But the question remains as to how long the chip sector will receive a standing ovation given that it is facing oversupply.
And soon, its cycle is about to go down, and the economy could become vulnerable given its high dependence on semiconductors, according to analysts.
When excluding chips, Korean exports grew just 0.2 percent in the first seven months of the year.
"The economy will rely on exports of chips until early next year. But the industry may reach breaking point in 2020 when China moves to boost its strategic tech sector for its next stage of growth," said Kim Doo-un, an economist at KB Securities.
"Korea needs to further diversify its export goods. This will not happen overnight. So it will have to count on chips for the time being."
China is aggressively investing in new technologies and alternative energy as it seeks to have them contribute 15 percent to its gross domestic product (GDP) growth by 2020, up from 5 percent. The size of this tech sector alone would roughly equal the total annual output of Germany.
And the focus of China's strategic growth plan is semiconductors, which have become the core part of all future products related to the Fourth Industrial Revolution such as robotics, the internet of things, cloud computing and driverless automobiles, analysts say.
Prices of DRAM memory chips have fallen nearly 14 percent since the first quarter on oversupply. Some analysts forecast the DRAM price could reach its peak in 2019. The chip industry has been booming over the past five years, on the back of growing demand for tech products and systems.
The glut could bring about a change in the chip cycle given what goes up must come down.
One of the factors that can cause this to happen "abruptly" is the ongoing U.S.-China trade conflict. The U.S. has indicated its intention to impose higher tariffs on semiconductors and tech products from China.
"We expect chip-backed exports to sustain the economy through the end of the year. However, the U.S.-China dispute is worrisome. If it gets worse, it could further raise concerns over Korea's overdependence on chips," said Lee Sang-jae, an economist at Eugene Investment & Securities.
The securities company forecast exports to increase 5 percent this year, from 2017.
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