South Korea’s artificial intelligence-led semiconductor boom has yet to make a meaningful impact on the broader economy, even as the Bank of Korea (BoK) is raising the possibility of a rate hike next month on concerns over the victory and financial stability, Nomura’s senior economist said.Speaking at Nomura’s Korea Equities & Economy media briefing in Seoul, Park Jeong-woo, Nomura’s senior economist for South Korea and Taiwan, said the main issue was not whether semiconductor stocks were performing well, but whether that strength was translating into broader economic activity, according to The Korea Herald, as cited by ANI.“Nobody can deny the strength in semiconductors and the stock market has been strong on the back of that,” Park said. “The key question is whether that strength is flowing to the rest of the economy.”Park said the BOK appeared to have changed its tone since May, placing less emphasis on a K-shaped recovery and more on the trickle-down effects expected from the semiconductor upcycle.However, Nomura is not convinced that the benefits have been widespread.“So far, there is no evidence that the warming in domestic demand is spreading,” he said.The comments come as South Korea is benefiting from strong global demand for AI-related chips, a trend that has boosted semiconductor exports and lifted equity markets. However, Nomura believes the broader economy has yet to reap the full benefits of the surge, according to The Korea Herald report cited by ANI.Park said semiconductor exports were largely driven by price effects, while the growth in shipment volumes has not been extraordinary by historical standards. As a result, the sector’s contribution to GDP may be less significant than key export figures.He said business investment has been supported by chipmakers’ capex cycle and is likely to remain strong through the third quarter. But its impact may be subdued later in the year, while construction activity remains under pressure from higher interest rates and higher building costs.Consumption data also presents a mixed picture.Park noted that department store card spending increased by 17%, far greater than the approximately 2.5% increase in total card spending, although most of the increase appeared to be concentrated in luxury purchases. Meanwhile, domestic automobile sales declined by nearly 8% in May.“The evidence is still not very strong that the semiconductor and stock market rally is leading to consumption,” Park said as quoted by ANI.Nomura expects South Korea’s economy to grow 2.4% this year, below the BOK’s forecast of 2.6% but below the country’s projected potential growth rate of 2%.“Two-tenths four percent is not a weak number,” Park said. “But given the high expectations and the limited pace at which the strength in domestic demand is spreading, we think this is an appropriate growth rate for this year.”On inflation, Park said Nomura views current price pressures as primarily supply-driven rather than the result of strong demand.Employment and wage indicators do not yet show broad inflationary pressures seen during 2021-23, he said, adding that inflation may peak around August or September.Despite that assessment, Nomura expects the BOK to raise its policy rate in July and eventually take it to 3.25%.Park said the expected move would be driven less by growth and inflation concerns and more by financial stability considerations, particularly the won and the housing market.“An increase of 25 basis points will not change the direction of the exchange rate,” he said, adding that a much larger increase would be needed to significantly impact the currency, although such a move seems unlikely given the burden on households and companies.