[Exclusive] The Hard-Hit Livelihood Economy... Businesses Shrink for the First Time in 26 Years

6 Million Businesses Last Year... Decrease of 140,000
First Decline Since 1998 Financial Crisis
570,000 Businesses Suspended or Closed
330,000 'Unconfirmed' Cases, Likely More Suspended or Closed
"More Businesses Expected to Close Due to Economic Downturn"

Last September, a rental notice was posted at a commercial building in Myeongdong, Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Mr. A decided to close the cafe he had been running for nearly three years in Gwanak-gu, Seoul. Although business was somewhat steady in the early days of the startup, operating profits gradually declined and recently shrank to a quarter of what they once were. Due to soaring prices, even during peak seasons when business was good, it was difficult to maintain a livelihood after deducting costs for ingredients and electricity. Mr. A has even applied for personal rehabilitation as his debt increased during the startup process.

Last year, the number of domestic businesses decreased by approximately 140,000. This is the first time in 26 years since the International Monetary Fund (IMF) bailout period in 1998 that the number of businesses has declined. The number of ‘temporarily closed or permanently shut down’ businesses, a statistic not publicly disclosed, approached 570,000. There are warnings that the number of businesses may decrease further this year as the domestic economy is expected to struggle to recover from stagnation. Experts point out that the red light has turned on for the quantitative growth of the Korean economy, which had steadily increased even during the global financial crisis and the COVID-19 pandemic.

140,000 Businesses Disappear in One Year, First Time Since the Financial Crisis

According to the ‘2024 National Business Survey Results’ obtained by Asia Economy on the 19th, the total number of businesses nationwide was tentatively counted at 6,003,639 as of the end of last year. This is a decrease of 136,260 (2.2%) from 6,139,899 in 2022. Compared to 2020 (6,032,022), when businesses without physical locations such as one-person media creators were first included in the statistics, the number is even lower. These results will be officially announced in September after adjustments and analysis.

The National Business Survey is a statistical operation that identifies the regional size, distribution, and employment structure of all businesses conducting industrial activities domestically. Unlike corporate surveys that consider corporations with multiple branches as one entity, this survey examines individual stores and restaurants, allowing for a more detailed understanding of the livelihood economy. This year, a budget of 27.06 billion KRW and 11,945 investigators were deployed to conduct a full survey of 7,147,276 business locations. The Statistics Korea has completed the survey, data entry, and organization.

Since the business survey statistics began in 1994, the only year when the number of businesses decreased was 1998. The number of businesses, which was 2.85 million in 1997, dropped to 2.78 million the following year due to the aftermath of the financial crisis. However, it recovered to 2.92 million in 1999. Even after the card crisis in 2004, known as Korea’s first economic crisis of the 21st century, the number of domestic businesses increased by about 2,000 (0.1%). During the 2008 global financial crisis (0.1%) and the 2021 COVID-19 pandemic (0.8%), the number also showed slight growth.

The decline was particularly noticeable in the metropolitan area. The number of businesses located in Seoul was 1,126,021, down 54,004 (4.5%) from the previous year, marking the fourth consecutive year of decline. Both the scale and rate of decrease were the highest among metropolitan local governments. Gyeonggi Province and Incheon City also saw business numbers drop by 41,564 (2.7%) and 7,339 (2.3%), respectively, exceeding the average decline.

Statistics Korea explained, “Since the fourth-quarter data has not been updated, the current figures are not final,” adding, “The numbers may change after verification.” However, it is unlikely that the downward trend itself will change. The decrease is large enough to exceed 130,000, and the verification process is merely a procedure to check for changes or errors. In the previous survey, Statistics Korea also distributed provisional figures, with differences of only about 1,000.

570,000 Businesses Temporarily or Permanently Closed... "Triple Hardships Raise Future Concerns"

The biggest reason for the decrease in businesses was ‘temporary or permanent closure.’ Unlike corporate surveys, Statistics Korea does not disclose the status of temporarily or permanently closed businesses in the business survey, citing that it does not align with the purpose of understanding business size and sales. According to our investigation, the number of temporarily or permanently closed businesses was identified as 569,930. This accounts for half of the 1,143,637 ‘inactive businesses’ excluded from the survey. Considering that 333,487 (29.1%) businesses were ‘unverifiable’ in terms of operation status, the actual number of closed businesses is estimated to be even higher.

The outlook remains challenging. Last year, the domestic consumer price inflation rate was 3.6% compared to the previous year. Although it dropped to 2.8% in January, marking the 2% range after six months, it rose again to 3.1% in both February and March. With concerns over a Middle East conflict between Israel and Iran pushing oil prices up and the high exchange rate nearing 1,400 KRW per USD continuing, a high inflation trend is inevitable for the time being. Additionally, if public utility fees such as electricity rates increase, maintaining inflation in the 2% range this year will be difficult. High inflation leads to reduced household purchasing power, further solidifying the vicious cycle of domestic demand stagnation.

The impact is expected to be greater on small-scale self-employed businesses. Last year, the ‘Yellow Umbrella Mutual Aid,’ which small businesses and self-employed individuals apply for when facing livelihood threats due to closure or old age, recorded its highest ever figures. According to data submitted by Yang Kyung-sook, a member of the National Assembly’s Planning and Finance Committee from the Democratic Party, from the Ministry of SMEs and Startups and the Korea Federation of SMEs, the number of claims for closure-related mutual aid payments increased by 20.7% year-on-year to 110,015 cases. The total payout also exceeded 1 trillion KRW for the first time, reaching 1.26 trillion KRW last year.

Experts point out that the prolonged triple hardships of high interest rates, high inflation, and high exchange rates, which began in 2022, have dealt a direct blow to the livelihood economy. Professor Lee Jeong-hee of Chung-Ang University’s Department of Economics warned, “Due to the ongoing triple hardships, the (businesses’) resilience has not strengthened but weakened,” adding, “Since the economy is still not good, the number of businesses closing may continue to increase.” Professor Seok Byung-hoon of Ewha Womans University’s Department of Economics stated, “It is necessary to consider the company’s asset size, sales, and number of employees together,” but also diagnosed, “It is possible that relatively less competitive companies have been eliminated, leading to the decrease.”