Resolving the 'Internal Stress' Pressuring the Korean Economy... Will the Tightly Closed Wallets Open? [Yoon Seok-yeol Impeachment]

Consumer Sentiment Expected to Improve Slightly
However, Concerns Over External Risks Remain
Cautious Views Prevail: "We Need to Wait and See"

The Constitutional Court's acceptance of the impeachment motion against President Yoon Seok-yeol has drawn attention to whether the domestic economy, which has fallen into an unprecedented slump, will rebound. Considering the social atmosphere that was severely contracted due to the December 3 martial law incident last year, there is growing expectation for an improvement in consumer sentiment. However, cautious views are also prevalent, as uncertainties in the global economy have increased due to tariff bombs from the U.S. Donald Trump administration, and high inflationary pressures continue, suggesting that more time will be needed for the domestic market to recover.

The streets of Myeongdong in Jung-gu, Seoul, appear quiet with fewer visitors. Photo by Jo Yong-jun

According to Statistics Korea and the distribution industry on the 4th, the seasonally adjusted retail sales index for semi-durable goods in February fell by 1.7% compared to the previous month. Categories including essential daily necessities such as clothing (-1.7%) and shoes and bags (-8.7%) all showed a decline. Non-durable goods retail sales also decreased by 2.5%, continuing the slowdown trend. In particular, food and beverage consumption dropped by 6.3%, indicating a contraction in consumer sentiment. Until December last year, consumption of semi-durable and non-durable goods had increased by 1.0% and 1.5%, respectively, showing signs of recovery, but since January this year, both have recorded declines for two consecutive months.

Service industry production also showed weakness. Production in accommodation and food services in February decreased by 3.0% compared to the previous month, marking the largest drop since February 2022. With dining out and outing demands both falling simultaneously, the overall perceived economy is cooling further.

The distribution industry's performance was also hit hard. Sales in February at major department stores such as Lotte, Hyundai, and Shinsegae, as well as large marts like E-Mart, contracted compared to the same period last year. For Shinsegae Department Store and E-Mart, February sales were 535.3 billion KRW and 1.3092 trillion KRW, respectively, down 7.0% and 7.9% year-on-year. Industry insiders said, "The contraction in consumption is felt at a tangible level."

If political risks are resolved and the presidential election season intensifies, there is also a possibility that consumer sentiment will rebound. The Bank of Korea's Consumer Confidence Index (CCSI) plunged from 101 in November last year, just before the martial law announcement, to 88 in December. This was the largest drop since the global financial crisis. Since then, it showed a slight recovery to 91 in January and 95 in February this year, but fell again to 93.4 in March. A similar pattern was observed during the impeachment of former President Park Geun-hye. At that time, the consumer confidence index dropped from 103 in October 2016 to 94 in December, then recovered to 102 after the impeachment was accepted in April 2017.

The CCSI is an index calculated using six indicators: current living conditions, expected living conditions, expected household income, expected consumption expenditure, current economic conditions, and future economic outlook. A value above 100 indicates optimistic consumer sentiment compared to the long-term average (2003?2024), while below 100 indicates pessimism.

Department stores and duty-free shops in central Seoul commercial districts are expecting a recovery in foot traffic following the end of political rallies. The food and beverage and franchise industries are also closely monitoring signs of demand rebound, such as increased inquiries about franchise store openings.

However, cautious views still prevail inside and outside the distribution industry. A representative of a major distribution company said, "While the resolution of political uncertainty is positive, external risks such as high inflation, rising exchange rates, and tariff pressures from the new Trump administration remain," adding, "It will be difficult to see a visible recovery in consumer sentiment within the first half of the year." A franchise industry official lamented, "Since the second half of last year, inquiries about franchise store openings have sharply declined," and "existing store owners are also struggling with poor sales." A travel agency representative also said, "Reactions from overseas buyers may vary depending on political stability."

Experts also take a cautious stance on the speed of recovery. Professor Seo Yong-gu of Sookmyung Women's University analyzed, "If political risks are settled, consumption may gradually revive in the second half of the year, but a clear economic stimulus signal must accompany it for consumer confidence to recover."