Chip upcycle, easing oil-related pressures to boost consumption in 2027: KDI

SEOUL, Nov. 12 (Yonhap) -- A state-run think tank in South Korea predicts that the global semiconductor upcycle and easing pressure from higher oil prices will lead to stronger consumption next year. The Korea Development Institute (KDI) released this outlook as it assessed that the current global chip upcycle, fueled by the AI boom, has had limited impact on domestic consumption. This is due to the slow spillover of benefits, while higher oil prices have immediately restricted spending room.

According to the KDI, the positive effects of the chip upcycle are anticipated to gradually increase, while the negative effects of oil price hikes will wane next year. This shift is expected to result in stronger consumption compared to this year. Additionally, bonuses and dividends paid by major chipmakers could further bolster domestic consumption, although geopolitical uncertainties in the Middle East may introduce some downside risks.

Despite these potential challenges, the KDI recommends that the government avoid measures aimed at stimulating short-term spending. Instead, it advises focusing on improving employment and income conditions to establish a foundation for a sustainable recovery in consumption. With consumption growth predicted to gain momentum next year, the KDI suggests that additional demand stimulation measures across the entire economy may not be necessary.

However, the think tank warns that the anticipated recovery will heavily depend on the semiconductor sector. Consequently, consumption could become overly reliant on the chip industry cycle. To attain a sustainable recovery in consumption, South Korea must strengthen the productivity of non-chip industries, enhance employment and wage conditions, and broaden the basis for a consumption recovery.