Analysts say Korea's economy has effectively entered the 13th expansion phase after passing through the 12th business cycle that followed the COVID period. A business cycle refers to a pattern in which the economy expands and then contracts. This expansion, however, appears to be led largely by the semiconductor and ICT (information and communications technology) sectors. Some say the length of this expansion could vary depending on whether the semiconductor boom spreads to jobs, consumption and investment across the board.
◇ Expansion signals emerging across the board… Korea Institute of Finance says "the economy likely passed its trough around last September"
The Korea Development Institute (KDI), a state-run think tank, recently assessed that the economy is in an "expansion phase." Jeong Kyu-cheol, head of KDI's Economic Outlook Office, said on the 13th, "KDI's growth forecasts of 2.5% for this year and 1.7% for next year are above the estimated potential growth rate," adding, "It can be interpreted as an expansion phase."
Trend indicators also support this. According to the industrial activity trend, the coincident and leading composite indexes' cyclical components both rose for two straight months in February and March. As a rule, the Ministry of Data and Statistics (MODS) views six consecutive months of simultaneous increases in the two indexes as a signal of entry into an expansion phase. It is only two months so far, but some say the data continue to support the likelihood that the trough has been passed.
Experts say it is highly likely that this is the beginning of Korea's 13th business cycle. Since 1970, the data agency has determined Korea's "official" business cycles and defined them as "cycles." However, because the designation is made years later, it cannot be known in real time. The most recent official designation was the "12th cycle trough" (May 2020) announced three years ago. The agency plans to announce the peak of the 12th cycle after deliberation by the National Statistics Commission at the end of this year.
Policy circles are focused on when the expansion phase of the 13th cycle begins. Kim Hyun-tae, head of the Macroeconomics Department at the Korea Institute of Finance, who developed an in-house model that can assess cycles early, said, "It is estimated that the economy hit bottom around September to October last year and shifted to an expansion," adding, "Judging from recent indicators, the characteristics of an expansion seem to be continuing."
◇ Korea's expansion phases have lasted from a minimum of 17 months to a maximum of 54 months—what about this time?
If, as experts say, Korea's economy has effectively entered its 13th expansion phase, attention is turning to how long it will last.
Looking at past cycles, expansion phases have lasted as short as 1 year and 5 months and as long as 4 years and 6 months. The shortest expansion was the 8th cycle from July 2001 to December 2002, when the economy briefly rebounded on the back of card spending and domestic demand after the dot-com bubble shock. The longest was the 11th cycle from March 2013 to September 2017, when low interest rates and a recovery in domestic demand after the European debt crisis coincided with a boom in exports and semiconductors in 2016–2017.
A defining feature of this expansion is the strong leadership of semiconductors. Deputy Minister Kim Hyun-tae said, "We have never seen a case where semiconductors had such overwhelming influence on the economy," adding, "In the past, the economy was buoyant with overall industries doing well alongside a semiconductor supercycle, but now semiconductors and ICT alone are leading the economy."
The key is whether the semiconductor-centered recovery can spread to jobs, consumption and investment across the board. Deputy Minister Kim said, "Even if the gross domestic product (GDP) figure looks good, we have yet to see the spillover to other industries or the broader economy," adding, "If semiconductor demand were to weaken under these conditions, this long-awaited expansion phase could end sooner than expected."