Confidence in South Korea's tech sector falls to seven-year low amid weakening demand for semiconductors, among others

South Korea's tech sector is now more pessimistic about consumer demand than it was during the COVID-19 pandemic, with the outlook for confidence slipping to its lowest level in seven years.

According to Bloomberg News, data released by the Bank of Korea on Friday showed that the outlook index for the electronics, display and communication equipment industries fell to 61 in February. If actual business results match forecasts, it would be the lowest reading since the business survey hit 59 in February 2016.

The index of industry confidence includes semiconductor, display and smartphone makers, which are the main drivers of South Korean exports, the report said. South Korea's two chip-making giants, Samsung Electronics Co. and SK Hynix Corp., are the world's leading suppliers of computer memory and are particularly vulnerable to a recent drop in consumer demand.

The deteriorating sentiment in South Korea's tech sector suggests that the current recession may be worse than during the COVID-19 pandemic, including that global interest rates are still rising and inflationary pressures are not easing.

South Korea's economy contracted for the first time in years last quarter as exports fell and consumption slowed, with weakening demand for semiconductors largely responsible for the decline. The government expects chip exports to start recovering in the second half of the year.

“We’re not out of the woods yet when it comes to electronics,” said Frederic Neumann, chief Asia economist at HSBC Holdings Plc. “A recession is just one of the risks.”