Analysts say Korea's economy, after passing through the 12th business cycle that continued during the COVID-19 period, has effectively entered the 13th expansion phase. A business cycle refers to a pattern in which the economy expands and then contracts. This expansion, however, is heavily led by the semiconductor and ICT (information and communication technology) sectors. Some note 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 Gyu-cheol, head of the Macroeconomic and Financial Policy Research Department at KDI, said on the 13th, "KDI's growth forecasts for this year and next year, 2.5% and 1.7%, are higher than the estimated potential growth rate," adding, "It can be interpreted as an expansion phase."
Trend indicators also back this up. According to the industrial activity trend report, the cyclical components of the coincident index and the leading index both rose together for two straight months in February and March. Typically, the Ministry of Data and Statistics (MODS) views six straight months of gains in both indicators as a signal of entry into an expansion phase. It has only been two months, but many say the trend supports the possibility that the economy has passed its trough.
Experts say it is highly likely Korea is at the start of its 13th business cycle. Since 1970, the data office has determined Korea's "official" business cycle periods and defined them as "cycles." However, because these are determined retrospectively years later, they are not known in real time. The most recent official designation was the "12th cycle trough" (May 2020), declared three years ago. The data office 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 Macroeconomic Research Division at the Korea Institute of Finance, who built an in-house model to assess business cycles early, said, "It is estimated that the trough was hit around September to October last year and the economy shifted into an expansion," adding, "Judging from the latest indicators, the characteristics of an expansion appear to be continuing."
◇ Korea's past expansions lasted from at least 17 months to as long as 54 months. What about this time?
If, as experts say, Korea's economy has effectively entered the 13th expansion phase, attention is turning to how long it will last.
Looking at past cycles, expansion phases lasted as little 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, a brief rebound driven by card spending and domestic demand after the shock of the dot-com bubble. The longest expansion was the 11th cycle from March 2013 to September 2017, when low interest rates and domestic demand recovery after the European debt crisis coincided with an export and semiconductor boom in 2016–2017.
A hallmark of this expansion is that semiconductors are strongly in the lead. Deputy Minister Kim Hyun-tae said, "There has never been a case where semiconductors had such overwhelming influence on the cycle," adding, "In the past, the economy was buoyant as industries broadly did well while a semiconductor supercycle overlapped, but now there is an aspect where only semiconductors and ICT are leading the cycle."
The key question is whether a semiconductor-centered recovery can spread to jobs, consumption and investment across the board. Deputy Minister Kim said, "Even if the GDP number looks good, we still don't see spillover to other industries or the broader economy," adding, "If semiconductor demand falters in this state, the long-awaited expansion phase could end sooner than expected."