“The economy is strong, but policymakers must avoid overreacting with monetary policy,” report warns

South Korea’s economy has entered an expansion phase on the strength of semiconductor exports, but an excessive monetary-policy response could cement a K-shaped recovery, the Hyundai Research Institute warned.

In a report released on the sixth, the institute said policymakers should examine the possibility that “policy overkill” could entrench economic polarization. Its concern is that a rapid rise in interest rates could weigh unevenly across the economy, even as overall indicators improve.

The institute said the recovery in exports has not yet generated enough spillover into domestic demand. In aggregate, however, it assessed the economy as being in an expansion phase.

The report pointed to the movement of the coincident composite index, which stood at 100.3 points in April, 99.9 in May, 100.4 in June and 101.2 in July. The leading composite index rose from 102.3 points in April to 102.9 in May, 103.8 in June and 104.2 in July. The institute said those trends suggested the expansion could continue.

It maintained a positive view of semiconductor exports, which currently drive the economy. The supplied excerpt ends while discussing the share of semiconductor exports in total exports.