South Korea’s domestic consumption, already weakened by high interest rates and inflation, took a sharp downturn in 2024 as the country grappled with economic stagnation and political turmoil. Retail sales, a key gauge of consumer demand, fell for a third straight year, marking the worst consumption slump in 21 years.
The downturn extended beyond retail, with construction activity seeing its sharpest contraction in three years, fueling concerns that the domestic economic slump shows no sign of abating.
According to Statistics Korea’s “December and Annual Industrial Activity Trends” report released on Feb. 3, retail sales in 2024 fell 2.2% from the previous year — the largest decline since the 3.2% drop in 2003, when a credit card crisis left 3.72 million people in bad credit.
Retail sales dipped 0.1% in 2020 during the onset of the COVID-19 pandemic but rebounded with a 5.8% increase in 2021. However, they fell by 0.3% in 2022 and continued their downward slide with a 2.2% drop last year, weighed down by weak exports.
Despite the Bank of Korea lowering interest rates and inflation stabilizing around 2%, hopes for a recovery in consumer spending were dashed by delayed economic recovery and weakening consumer sentiment. It marked the first time since record-keeping began in 1995 that retail sales have fallen for three consecutive years.
High-value goods such as passenger cars (-7%) and home appliances (-3.3%) saw significant sales declines. Cosmetics (-3.9%), clothing (-3.3%), and bags (-2.9%) also posted weak sales figures.
“The perception that the economy is not recovering, combined with reduced purchasing power due to high inflation and interest rates, has led consumers to prioritize only essential spending,” said Ahn Dong-hyun, an economics professor at Seoul National University. Hanyang University professor Ha Joon-kyung added, “Household debt burdens remain a significant factor contributing to sluggish domestic demand.”
Political unrest compounded the economic challenges. President Yoon Suk-yeol’s emergency martial law declaration on Dec. 3 and subsequent impeachment proceedings further stifled consumer activity, as year-end gatherings—typically a boon for spending—were largely absent.
In December alone, retail sales fell 0.6% from the previous month, marking the fourth consecutive monthly decline. Service sector production in the lodging and restaurant industries fell 3.1% in December, the steepest drop since February 2022, when the Omicron variant spread rapidly.
The tourism and leisure sectors were also hit hard, with production in the arts, sports, and recreation segment falling 6.9%. The decline was attributed to a national mourning period following a deadly Jeju Air crash on Dec. 29.
The construction sector, another pillar of domestic demand, also faced a downturn. Construction performance, which measures completed projects in the civil engineering and building sectors, fell 4.9% in 2024, the largest drop in three years.
Amid the broader consumption slump, there were glimmers of hope in the semiconductor sector. Rising exports helped push overall industrial production up 1.7% in 2024, compared with a 1% gain the previous year. Increased factory investments in semiconductor manufacturing equipment also contributed to a 4.1% rise in facility investments.
However, the sluggish domestic market carried into the new year. The five major automakers — Hyundai Motor, Kia, GM Korea, KG Mobility, and Renault Korea — reported combined domestic sales of 90,587 vehicles in January, an 11.8% year-on-year decline. Sales of compact vehicles like the Casper (-69.2%) and Ray (-6.2%) as well as commercial vehicles like the Porter (-32.3%) and Bongo (-21.3%) saw notable drops.
“Young consumers and small business owners, who are already under heavy financial pressure, are pulling back on car purchases,” said a representative from the Korea Automobile & Mobility Association.
Experts are urging the government to increase fiscal support for low-income households and small business owners, who have been hardest hit by the prolonged consumption slump.
“Targeted support through a supplementary budget should focus on low-income groups and small business owners, as they are likely to immediately spend the financial assistance, boosting consumption,” said Yang Jun-sok, an economics professor at Catholic University.
