Due to the prolonged high inflation and interest rates, domestic consumption in South Korea has shrunk during the first half of this year.
According to a report on recent trends and implications in retail sales released by the Korea Employers Federation (KEF) on Oct. 9, the growth rate of the retail sales index (nominal value) in the first half of this year stood at only 0.3% compared to the same period last year.
In the previous years, the retail sales index increased by 8.1% in 2021 and 7.1% in 2022, maintaining a 7–8% growth range. However, the cumulative effects of rising prices caused this rate to drop to 2.2% last year and even further this year.
The retail sales index, which represents the actual level of retail sales, recorded a growth rate of -2.4% in the first half of this year, the lowest since 2003, when domestic consumption plummeted following a surge in credit card defaults and excessive household debt.
The retail sales index has continued to decline, with growth dropping from 5.5% in 2021 to 1.2% in 2022, -0.8% in 2023, and -2.4% this year.
The KEF analyzed that domestic consumption has steadily weakened since around 2020, with global inflation playing a significant role in the decline.
When breaking down the retail sales index growth rate by product category in the first half of this year, durable goods like other durable items (10.3%), furniture (8.7%), and pharmaceuticals (5.1%) showed high growth. However, sales of passenger cars (-8.1%), leisure, hobby, and sporting goods (-5.3%), and other semi-durable goods (-3.6%) were significantly lower.
Lee Seung-yong, head of KEF’s Economic Analysis Team, emphasized the need for policies to boost domestic consumption, including regulatory easing and support measures. He also pointed out that the prolonged high interest rates should be lowered at this stage.
