Korea's Chip Production Plummets to Lowest Level Since Global Financial Crisis

In November, South Korea's semiconductor production experienced its most significant decline since the global financial crisis, which had a negative effect on the nation's industrial output. This is an indication that the demand for tech components from abroad is decreasing as the global economy slows down.

Data released Thursday from the national statistics office showed that chip production had decreased for the fourth consecutive month, with a 15% decline from the same time last year. This was the largest drop since 2009. Additionally, overall industrial production had dropped 3.7% from the previous year, the largest decrease since the start of the pandemic.

The production of chips in Korea has had a negative effect on the country's industrial activity. This has caused a decrease in the nation's industrial output.

Comparing year-over-year, there are changes that can be observed.

The decrease in activity is indicative of a slowing recovery in a country that is highly dependent on the global economy. South Korea's growth is already being affected by decreasing exports and increasing interest rates domestically, and the pessimistic outlook abroad is only adding to the worries.

The likelihood of recessions in major foreign economies, including the United States, is increasing as the Federal Reserve takes the lead in a series of monetary tightening measures to combat inflation and the Russian-Ukrainian conflict persists. Although China's reversal of its Covid Zero policy indicates that its economy will become more robust in the future, a sudden rise in infections could complicate the situation in the short term.

The Finance Ministry noted that the weakening demand for chips is just one of many factors that are making the economic outlook of Korea more uncertain. This includes the aftermath of the truckers' strike that recently ended and the tragedy of the crowd-crush in Seoul.

The more uncertain economic outlook has caused the Bank of Korea to be more cautious in their decision-making process. The BOK has been increasing interest rates for over a year and is currently debating whether to make one or two more hikes in the upcoming year.

Statistics Korea reported that chip production had decreased 11% from the previous month, while semiconductor inventories had increased 20% from the same time last year in November. This was an increase from the 12.9% growth seen in October.

Since October of last year, inventories have seen a significant rise, indicating a surplus of memory chips worldwide, with Korea being the main producer. As a result, chipmakers are adjusting their investment strategies in preparation for a decrease in demand for their products both domestically and internationally.

It is expected that the supply of DRAM will exceed the demand for an extended period of time.

Dynamic random access memory (DRAM) plays a major role in Korea's chip exports. This type of memory is essential for many electronic devices, making it a key component of the country's export market.