Consumer sentiment fall largest in Dec.; retail sales decrease 10 straight quarters
Consumer sentiment is plunging amid the fallout from the presidential impeachment.
To make matters worse, weak domestic demand has overlapped with sluggish exports and prolonged Korean currency depreciation. If this continues, no one can rule out the possibility of the national economy entering long-term stagnation and falling far short of its potential growth rate next year.
The consumer sentiment index fell to 88.4 in December, down 12.3 points from a month earlier, according to a Bank of Korea survey Tuesday.
This marks the largest fall since March 2020, when the nation was at the start of the COVID-19 pandemic.
Credit card payments decreased 26.3 percent nationwide in the first week of December from the previous week. It is the first time since 2020 that card use diminished this fast in early December.
In a poll by the Korea Federation of Micro Enterprise, 88.4 percent of respondents said sales had decreased after the martial law declaration.
The retail sales index, an important barometer of year-over-year change in consumption, fell in the third quarter for a tenth quarter in a row, beginning from the second quarter of 2022, also a record for the longest decrease, according to Statistics Korea.
The Korea Development Institute, a state think tank on development policies, evaluated domestic demand as sluggish for 13 straight months from December last year, which is the longest ever.
The loan default rate of the low-income self-employed with low credit scores hit an 11-year high of 11.5 percent at the end of the third quarter.
Economic conditions felt by small businesses are worsening to an unbearable level. In a recent meeting between heads of business lobbies and acting President Han Duck-soo, Kim Ki-mun, chair of the Korea Federation of Small and Medium Business, told Han that presently "politics might be hard while economic conditions are absolutely tortuous."
Of particular concern is the possibility of the current struggling economy not reviving in a short period of time.
Deputy Prime Minister Choi Sang-mok said on Monday that the nation's economic growth rate is expected to fall short of its potential level of 2 percent next year. The Bank of Korea recently forecast Korea's potential growth rate to drop continuously to the 1 percent range by 2030. Choi's prediction is a warning that it may fall faster than the central bank has forecast.
Considering the weakened fundamentals of the Korean economy, it is hard to expect the rapid resilience of the past.
Ahead of the launch of the Donald Trump administration that is expected to strengthen protectionism, South Korea's export prospects look dim. If the government misses the timing for undertaking proper measures, the stagnant economy will likely be prolonged.
Measures to revive consumption are urgent. The government has to figure out ways to help the self-employed substantially. Banks on Tuesday announced 2 trillion won ($1.37 billion) for three-year programs to reschedule debt for the self-employed in financial straits and extend low-interest loans to them. The programs must operate transparently.
The government is said to consider front-loading 75 percent of its 2025 budget in the first half to kick-start an economic recovery. Boosting the effort requires a supplementary budget. Both the ruling and opposition parties should cooperate over the extra budget issue. If this matter is delayed, the effect of government efforts to revive domestic demand cannot but be limited.
A trilateral consultative body involving the ruling and opposition parties and the government will set sail Thursday after many twists and turns. Rival parties on Monday agreed to operate the organization in a bid to lessen turmoil in the aftermath of the presidential impeachment.
One of the first things to do is to discuss drawing up a supplementary budget. It is also necessary to operate the body on two separate tracks: one to deal with political issues and the other economic matters.
