The shadow of war cannot stop the chip frenzy! South Korea's May exports recorded the largest increase in 40 years, adding fuel to the hawks of the central bank.

In May, South Korea's exports continued to show strong growth, despite rising geopolitical and inflation risks. Supported by the continued strong demand for chips, the Bank of Korea's increasingly hawkish policy stance is further strengthened. Data released by South Korea's Ministry of Trade, Industry and Energy on Monday showed that exports in May, adjusted for differences in working days, surged by 60.7% year-on-year. Imports grew by 20.8%, resulting in a trade surplus of $26.9 billion for the month. In terms of unadjusted figures, exports in May increased by 53.2% year-on-year, marking the highest monthly growth since 1984. Semiconductors continue to be the main engine driving export growth, benefiting from strong global investment in artificial intelligence and data centers. Semiconductor exports saw a record increase of 169.4% year-on-year. Exports of computer-related products and petroleum products also contributed to the growth, rising by over 290% and 46.6% respectively. The latest data indicates that the South Korean economy continues to strengthen. After contracting at the end of 2025, the South Korean economy saw a strong rebound at the beginning of this year. Driven by semiconductor exports and corporate investment, GDP grew by 1.7% quarter-on-quarter in the first quarter, the fastest growth rate since 2020. The data also supports the hawkish stance of the Bank of Korea. Last week, the central bank signaled two board members voting in favor of a rate hike, with the latest guidance leaning towards raising borrowing costs. Governor Shin Hyun Song stated that given rising oil prices, a weaker Korean won, and inflation pressures from resilient economic growth, a rate hike at the last meeting was already justified. Economist Hyosung Kwon said, "South Korea's accelerated exports in May highlight the resilience of external demand despite uncertainties such as the Iran war. The data suggests that there are upside risks to economic growth in the second quarter, further strengthening the rationale for the Bank of Korea to start raising rates in July." The Bank of Korea has raised its economic growth forecast for this year from 2% to 2.6%, reflecting the upward cycle driven by semiconductors. Governor Shin Hyun Song previously stated that the chip boom may be more sustainable than many expect, with industry profits gradually spilling over into the overall economy through stronger tax revenues, consumption, and investment. "Exports could remain strong at least until the end of this year or early next year," said economist Jeeho Yoon of BNP Paribas. "Market sentiment seems to be shifting towards the belief that the semiconductor upturn cycle will last longer." The prosperity in exports is increasingly spilling over into broader financial conditions. Economist Hyosung Kwon recently pointed out that the rise in semiconductor industry profits and expanded bonuses could flow into the real estate market, stock market, and drive wage growth, exacerbating inflation and financial stability risks. In terms of export destinations, exports to China increased by 81%, while exports to the U.S. grew by 59%, reflecting strong demand brought about by the global AI trend. Exports to ASEAN (Association of Southeast Asian Nations) grew by 58.4%, with major export categories such as semiconductors, fuel, and displays all showing growth.