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[Editorial] Tackle slow private spending

Protracted slump in private consumption contrasts with rapid growth of overseas travel

By Korea Herald

Published : Nov. 14, 2023 - 05:30

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South Korea’s private spending remains in a protracted slump, while a growing number of people go on overseas trips, particularly to Japan, where they tend to spend more generously, offering a contrasting snapshot of the country’s consumption trends.

Korea’s domestic private consumption stood at $206.53 billion in the second quarter, down $5.25 billion or 2.47 percent from the previous quarter, according to data released by Rep. Jin Sun-mee of the Democratic Party of Korea on Sunday. The Bank of Korea compiled the data from the World Bank, the International Monetary Fund and the Organization for Economic Cooperation and Development.

According to Statistics Korea, the retail sales index, a gauge of consumption trends, tumbled 2.7 percent in the third quarter from a year earlier, marking the biggest drop since the first quarter of 2009.

Data for September showed that sales of durable goods, including relatively high-priced items such as cars, dropped 3.7 percent on-year, after recording a 1.7 percent decrease in August. The car sales index swung into negative growth in September after recording 13 straight months of year-on-year growth, while electronics and furniture sales plunged by 10.2 percent and 13.1 percent, respectively, during the same period. Even demand for semi-durable goods such as clothes and shoes has continued to weaken since April.

Separately, Financial Supervisory Service data shows that sales of major department stores were weaker in the third quarter than a year earlier and convenience stores, which fared relatively well even during the pandemic, confronted tepid growth during the cited period.

Shinsegae Department Store posted 604.3 billion won ($456.2 million) in revenue in the third quarter, down 0.9 percentage point from a year earlier, according to the FSS data. It was Shinsegae’s first revenue drop in three years. Lotte Department Store’s revenue dropped 2 percent on-year in the third quarter.

Experts attribute the continued decline in private spending here to stubbornly high inflation and high interest rates, with more consumers tightening their belts to cope with the broader economic slump.

Although private spending is lethargic, there is a sector that stands out in terms of a pickup in spending: outbound tourism. Koreans are now shunning domestic tourist destinations in favor of foreign countries such as Japan that offer more choices at affordable prices. Jeju Island, for example, saw on-year declines in its services production and retail sales indexes of 1.9 percent and 6.4 percent, respectively, in the third quarter, Statistics Korea data showed last week. The number of visitors to one of the top domestic tourist spots fell 4.8 percent in the third quarter from a year earlier, reflecting hikes in lodging and transportation costs there.

In contrast, the number of Koreans making trips to Japan is soaring. In the first nine months of this year, the number of Korean tourists to Japan reached 4.89 million, accounting for about 28 percent of the total number of foreign tourists to the neighboring country. During the July-September period, Korean visitors are estimated to have spent 195.5 billion yen ($1.28 billion), or 110,686 yen per person, according to the Japan National Tourism Organization.

The tourism industry projects Korean visitors to Japan will surpass 6 million this year. The surging popularity for Japan among Korean tourists has been fueled by the weakening of the Japanese yen against the Korean won in recent months. At the beginning of the year, 100 yen was quoted at about 960 won, but fell below 900 won in June and has since weakened further. On Friday, 100 yen traded at 869 won.

The boom in trips to Japan reflects the relatively lower costs of accommodation, food and other tourism-related expenses compared to Korea, as well as the pent-up demand for overseas travel during the pandemic.

The outlook for private spending is also gloomy. The Korea Development Institute, a state-run think tank, slashed the growth in private spending for 2024 by 0.6 percentage point from its earlier estimate to 1.8 percent.

To reverse the sluggish spending trend, the government, regional administrations and private tourism industry must work together to improve infrastructure and service quality.