Although the South Korean economy has entered an expansionary phase driven by robust semiconductor exports, an analysis has emerged that the economic warmth has failed to sufficiently spread to domestic sectors such as consumption and employment, potentially solidifying a K-shaped polarization.

Experts pointed out that if monetary policy is operated overly tight in the process of responding to inflation and household debt, it could delay the recovery of domestic demand, warning against policy overreaction.

The Hyundai Research Institute made these remarks in a report released on the 6th titled "Time to Examine the Possibility of Solidified K-shaped Polarization Due to Policy Overreaction."

The preliminary real gross domestic product (GDP) growth rate for the second quarter stood at 0.6%.

Although the growth pace slowed from 1.8% in the first quarter, exports increased by 1.4%, pulling up the growth rate.

Exports in August surged 68.7% compared to August of last year, boosted by the semiconductor boom.

In particular, semiconductors' share of total exports jumped from 25.9% in August of last year to approximately 47.5% in August of this year.

While export growth heavily relies on semiconductors, households' perceived economic conditions and consumption remain relatively sluggish.

The retail sales index for July dropped 2.4% from the previous month, and the growth rate of durable goods consumption shifted from a 10.3% increase in June to a 4.1% decrease in July.

While total real income saw its growth pace rise to 0.4% in the first quarter and 1.5% in the second quarter due to high-oil-price subsidies, excluding public transfer income, the real income growth rate actually worsened from -0.3% in the first quarter to -1.3% in the second quarter.

This indicates that while total real income including government support increased, households' purchasing power through self-generated income has weakened.

A temperature difference was also observed in the labor market.

The youth unemployment rate in July rose 1.3 percentage points (p) from a year earlier to 6.8%, and the number of employed young adults has been on a downward trend for 45 consecutive months since November 2022.

The institute emphasized that under these circumstances, caution is needed to prevent policies aimed at responding to inflation and household debt from being operated in an overly restrictive manner.

It noted that with household debt still high, a sharp rise in market interest rates would increase interest burdens, thereby dampening consumption, while the cumulative effects of tightening could appear belatedly and trigger a credit crunch and domestic economic slump.

The institute suggested that price stability should not be left solely to monetary policy, and that micro-level responses tailored to each inflation-driving factor should be implemented in parallel.

The rationale is to stabilize prices through measures such as fuel tax cuts to stabilize petroleum prices while avoiding an "overreaction" in monetary policy.

It also added that secured fiscal capacity should be utilized to expand mid-to-long-term growth foundations such as energy, supply chains, and logistics, while strengthening support for small and medium-sized enterprises and vulnerable groups.