Korea Chip Boom May Be Understated in GDP as Nominal Growth Eyes Double Digits

Kim Yong-bum Says GDP Framework Has Limits

"AI Chip Price Surge Still Shows Up as 1.7% Growth"

Nominal GDP May Post Double-Digit Growth This Year

Revenue Estimates Are Based on Nominal GDP

That Could Add Momentum to an Expansionary Fiscal Stance

Kim Yong-bum, the presidential policy chief, said South Korea’s current gross domestic product framework is not fully capturing the semiconductor boom. A recent surge in artificial-intelligence chip prices and strong exports were not adequately reflected in first-quarter real GDP growth of 1.7%, he wrote. Still, nominal GDP, which includes price gains, may post double-digit growth this year, potentially giving added support to the government’s expansionary fiscal stance.

In a Facebook post on May 8 titled “KOSPI 7500, and at the threshold of 10,000,” Kim wrote that South Korea’s fiscal and macroeconomic outlook is built on GDP growth forecasts, but the current statistical system struggles to capture the latest chip boom.

In industries such as semiconductors, where quality improvements outpace price changes, existing statistics are too slow to reflect changes in the real economy, he said. Products such as high-bandwidth memory, or HBM, are becoming increasingly difficult to measure because performance, density and power efficiency are all improving at the same time. That makes it harder to separate price increases from real output growth.

Kim said the trade balance has been setting monthly records. Exports in April rose 48% from a year earlier, while semiconductor exports alone climbed more than 173%. Those are not numbers typically seen in a normal business cycle, he wrote. Markets have already begun pricing in the shift, but macroeconomic statistics and the policy framework are not built to keep up in real time. Tax revenue this year and next could reach historic levels because of the chip boom, he added, arguing that fiscal policy needs to break from thinking anchored to past averages and adopt a broader, more flexible view.

His point was that the semiconductor super-rally was not fully reflected in the recently released first-quarter real GDP figure of 1.7%. Real GDP strips out price effects and measures how much goods and services an economy produces. If output is unchanged and only prices rise, inflation can appear as a false signal of growth.

Kim argued that the framework itself was designed for a 20th-century manufacturing economy. In other words, the metric developed around traditional industrial benchmarks such as how many cars were produced or how many refrigerators were sold.

Prices for AI data-center semiconductors such as HBM have recently soared amid acute supply shortages. As a result, first-quarter operating profit surged 756% at Samsung Electronics Co. and 405% at SK Hynix Inc. The first-quarter real GDP figure, he argued, reflects only the increase in volume after stripping out those price gains.

Real GDP is also calculated using fixed prices from a base year to capture only pure changes in output. The base year for calculating this year’s real GDP is 2020. That does not mean technological advances in semiconductors are ignored altogether. The Bank of Korea uses chain weighting to reflect annual changes in price weights.

A Bank of Korea official said the effect of HBM, a product that did not exist in 2020, was reflected to some extent in the latest real GDP calculation. HBM was included as a new semiconductor product in the first-quarter GDP estimate, the official said. The emergence of HBM itself was one reason production volumes increased. Within the semiconductor sector, HBM’s weighting rose while the weighting of DRAM and NAND fell sharply. Semiconductor processing capacity is also reflected in the calculation, the official said.

Kim wrote that trade balances, export data and corporate earnings are the indicators that show current conditions most quickly. Fiscal policy, he added, needs to move beyond thinking tied to historical averages.

Even so, his criticism is only partly right because the government’s spending plans are based less on real GDP than on nominal GDP, which includes price changes.

In particular, revenue estimates that guide how much the government can spend are based on nominal GDP, which includes inflation. While first-quarter real GDP, measured by output, rose 1.7%, first-quarter nominal GDP is estimated to have jumped by double digits. Gross domestic income rose 7.5% from the previous quarter and 12.3% from a year earlier in the first quarter.

Bank of Korea officials internally see a meaningful chance that nominal GDP growth will reach double digits this year unless any disruption from a closure of the Strait of Hormuz becomes severe and prolonged.

That is increasing the importance of nominal GDP as an indicator, the central bank said. In the 1960s and 1970s, when consumer inflation topped 10%, real GDP was a more accurate gauge of economic growth. Now, however, the semiconductor market has shifted decisively in favor of suppliers, raising the importance of nominal GDP as well.

If such growth materializes, the government could gain more room to pursue expansionary fiscal policy. Kim said a more flexible approach is needed in fiscal policy, including revenue estimates. His remarks also suggest stronger backing for the current administration’s expansionary fiscal stance.

Shim Sung-mi, Hankyung.com reporter smshim@hankyung.com