Nomura Asia Insight: Korea — July Economic Activity Slowdown Driven by Technical Factors

Nomura argues Korea's July activity slowdown reflects technical factors rather than fading momentum: a payback after June's consumption surge, adjusted chip and auto production schedules, and the KOSPI correction weighing on finance. Industrial production rose 0.2% month on month (consensus: -0.5%), though autos fell 4.5%; services dropped 1.3% as financial services declined 4.8%. Construction remained the biggest drag—output fell 1.1% and orders plunged 34.0%—while real retailing slid 2.4%, giving back most of June's 2.7% gain, with durables down 7.7%. Offsetting this, equipment investment jumped 7.5% (24.9% y-y) on semiconductor-making equipment, and July semiconductor exports surged 178.8% on AI demand and memory price increases; the 7.3% m-o-m drop in chip shipments looks more like deepening chip shortages than cycle deterioration. Leading indicators improved. With economy-wide output 1.4% above the Q2 average and manufacturing 3.7% higher, Nomura's KRnow model tracks Q3 GDP at +0.8% q-q (Q2: +0.6%), creating upside risk to its +0.1% Q3 forecast; the 2026 growth forecast stays at 3.2% versus the Bank of Korea's 3.4%. Nomura expects the BOK to pause in October, hike 25bp in November and again in February 2027 to a 3.50% terminal rate, and sees a second supplementary budget within weeks.