South Korea's economy posted sharp declines across key indicators in October, with industrial output falling at the steepest pace in nearly six years and foreign currency deposits recording their largest drop in almost two years.
The contraction revealed underlying vulnerabilities in the country's manufacturing sector, particularly in semiconductors, despite strong global demand for artificial intelligence chips.
Industrial production dropped 2.5 percent from September, marking the largest decline since February 2020, when the country entered pandemic lockdowns.
The contraction was driven primarily by a 26.5 percent plunge in semiconductor output, which set a dramatic record as the sharpest monthly fall in 43 years since October 1982.
How Semiconductor Base Effects Masked Deeper Manufacturing Concerns
Government officials attributed the dramatic drop largely to a base effect following an approximately 20 percent surge in chip production during September, when semiconductor output hit an all-time high.
Lee Doo-won, director of economic trend statistics at the Ministry of Data and Statistics, stated that the decline was mainly due to a base effect after the semiconductor index reached an all-time high in September.
Overall production momentum remained solid thanks to the semiconductor boom, according to official assessments.
However, the magnitude of the monthly swing raised questions about the sustainability of South Korea's chip sector recovery.
The extreme volatility between September's record highs and October's severe lows suggested underlying structural pressures within the industry.
Manufacturing cycles in semiconductors typically show month-to-month variations, but swings of this magnitude may indicate potential capacity constraints or demand fluctuations that officials downplayed in their base-effect explanations.
Did you know?
South Korea's semiconductor output experienced its worst monthly decline in 43 years in October 2025, surpassing even the severe drops recorded during the 1982 global recession when the industry faced fundamental structural challenges.
What the 26.5% Chip Production Plunge Reveals About Global AI Demand Shifts
Despite the contraction, the downturn came amid continued strong global demand for semiconductors driven by artificial intelligence applications.
Samsung Electronics and SK Hynix, which together control approximately 70 percent of the global DRAM market, had announced plans for more than 200 trillion won in facility investments to expand production of high-bandwidth memory chips.
The announcement of massive investment plans suggested confidence in long-term AI chip demand, yet the October production collapse raised questions about near-term market realities.
Industry analysts noted that semiconductor manufacturers often face inventory cycles where production ramping precedes actual end-demand, creating mismatches between planned output and market absorption.
The October decline potentially reflected this inventory normalization after September's artificial peak, signaling that global AI demand, while robust, may be moving at a more measured pace than previously anticipated.
Why Foreign Currency Deposits Hit Their Lowest Point in Nearly Two Years
Meanwhile, foreign currency deposits held by South Korean residents fell 5.26 billion dollars to 101.83 billion dollars at the end of October, marking the sharpest monthly decline since January 2024.
Corporate deposits dropped 5.5 billion dollars to 86.76 billion dollars, driven by companies' repayment of foreign-currency borrowings, reduced investor deposits at securities firms, and overseas investment executions by pension funds, according to the Bank of Korea.
The significant capital outflow signaled growing concerns about Korean economic stability and currency strength. Capital flight of this magnitude typically reflects investor anxiety about future returns or currency depreciation risks.
Companies and pension funds moving funds overseas suggested confidence in international markets may have exceeded confidence in domestic Korean prospects, a concerning indicator for the central bank monitoring both economic growth and currency stability.
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Can Samsung and SK Hynix Sustain Their 200 Trillion Won Investment Plans
The data showed diverging trends across sectors, complicating the economic outlook. Retail sales surged 3.5 percent in October, marking the highest increase in two years and eight months, largely influenced by the Chuseok holiday.
However, facility investment fell 14.1 percent, with declines of 12.2 percent in machinery and 18.4 percent in transportation equipment investments.
Samsung Electronics and SK Hynix faced mounting pressure to deliver on their massive capital expenditure commitments despite the production volatility in October.
The sharp decline in facility investment across other sectors raised concerns about whether Korean manufacturers broadly possessed the financial capacity to maintain planned investments.
While semiconductor leaders announced ambitious plans for high-bandwidth memory expansion, economic headwinds and currency weakness could complicate funding these projects or achieving projected returns on invested capital.
What the Bank of Korea's Rate Pause Signals for 2025 Economic Recovery
The Bank of Korea held its policy rate steady at 2.50 percent on Thursday for the fourth consecutive meeting, signaling the potential end of its easing cycle amid concerns about the weakening won and elevated inflation.
The central bank raised its 2025 growth forecast to 1.0 percent from 0.9 percent previously, while projecting inflation at 2.1 percent for both 2025 and 2026.
The rate hold represented a critical pivot in South Korean monetary policy, balancing between supporting economic growth and defending currency stability.
With the won weakening and inflation pressures persisting, the Bank of Korea essentially signaled that interest rate cuts had likely concluded, constraining businesses seeking cheaper financing and households managing debt burdens.
The modest upward revision of 2025 growth forecasts provided some optimism, yet the persistence of 2.1 percent inflation suggested the central bank remained cautious about loosening policy further.
South Korea's October economic data painted a complex picture of an advanced economy navigating global semiconductor cycles, currency pressures, and capital movements simultaneously.
While government officials emphasized base effects and underlying strength in chip demand, the convergence of industrial contraction, capital outflows, and declines in facility investment suggested deeper challenges ahead.
The central bank's rate hold, though justified by currency and inflation concerns, left Korean policymakers with limited ammunition to stimulate demand if economic conditions deteriorated further in the coming months.
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