Retail Sales Index Down 2.2% Year-on-Year Last Year
Biggest Drop Since 2003 Credit Card Crisis
Retail Sales Decline for Three Consecutive Years... Longest on Record
People are not opening their wallets easily. Last year's retail sales index, which shows consumption of goods, recorded the largest decline in 21 years. This marks the first time since the statistics were created that there has been a decrease for three consecutive years. The prolonged impact of high interest rates and high inflation shows little sign of improvement.
Retail Sales -2.2%, Decline for 3 Consecutive Years
According to the 'December 2024 and Annual Industrial Activity Trends' released by Statistics Korea on the 3rd, last year's retail sales index fell by 2.2% compared to the previous year. This is the largest drop since the credit card crisis in 2003 (-3.2%). Retail sales have declined for three consecutive years following -0.3% in 2022 and -1.5% in 2023. This is the longest consecutive decline since Statistics Korea began surveying consumption items.
In particular, the semi-durable goods sector, such as clothing and shoes, led the decline with a 3.7% decrease. Semi-durable goods typically decrease easily when prices rise or the economy is difficult. Since these are not essential for immediate living, there is a tendency to postpone spending. The durable goods sector, which includes passenger cars and home appliances, also fell by 3.1%, and non-durable goods recorded a 1.4% decrease.
The outlook is not favorable either. Looking at monthly data, retail sales in December last year decreased by 0.6% compared to the previous month. Except for February (0.8%), all months showed a downward trend. After recording -3.6% in June and gradually improving to -0.8% in October, the trend worsened again.
The government analyzed that the sluggish retail sales are the aftermath of prolonged high interest rates and high inflation. Kim Gwi-beom, head of the Economic Analysis Division at the Ministry of Economy and Finance, said, "The past three years were a period of high interest rates and stagnant wages," adding, "Since disposable income fell, it likely had no positive effect on purchasing goods." The prolonged high interest rates to suppress high inflation, combined with real wages declining for two consecutive years, negatively affected consumer sentiment.
Overall Industrial Production Up 1.7% Thanks to Semiconductors
Total industrial production increased by 1.7% compared to a year earlier. Industrial production, which sharply declined in the first year of the pandemic, has increased for four consecutive years since 2021 (5.3%). Production rose in both manufacturing and service sectors. Mining and manufacturing production decreased in electrical equipment and primary metals but increased in semiconductors and pharmaceuticals, resulting in a 4.1% rise compared to the previous year. Service sector production decreased in wholesale and retail but increased in transportation and warehousing, finance, and insurance, leading to a 1.4% increase year-on-year.
The growth in production sectors is driven by semiconductors and automobiles. Monthly data shows that total industrial production decreased for three consecutive months in September (-0.4%), October (-0.3%), and November (-0.3%) last year but rebounded by 2.3% in December. The mining and manufacturing sector grew 4.6%, supported by strong performances in semiconductors (5.6%) and automobiles (10.7%). The global development of the AI industry sustained demand for high-spec semiconductors, and the end of strikes at automobile parts suppliers contributed to the favorable trend. The service sector also grew by 1.7%, boosted by increases in finance and insurance (5.3%) and wholesale and retail (2.8%).
The impact of the December 3 emergency martial law varied by industry. Service sectors related to domestic demand were hit hardest. In December last year, accommodation and food services decreased by 3.1%, marking the largest drop in two and a half years since June 2022 (-6%). Production in arts, sports, and leisure also fell by 6.9% in the same month. Gong Mi-sook, Economic Trend Statistics Officer at Statistics Korea, explained, "Accommodation, food services, leisure, and sports recorded negative figures, and retail sales have not recovered," adding, "It is possible to think that this is related to the martial law."
Facility investment turned to a 4.1% increase last year. Machinery such as semiconductor manufacturing equipment (2.9%) and transportation equipment including other transport equipment (7.8%) all increased. On the other hand, construction output decreased by 4.9%, the largest decline since 2021 (-6.7%). While civil engineering increased by 1.8%, construction saw a decrease in performance by 6.9%.
The coincident index of economic indicators, which reflects the current economy, remained flat compared to the previous month. The leading index, which predicts future economic conditions, fell by 0.2 points from the previous month.
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