Retail Sales Decline in Q2 This Year... Will Year-End Consumption Recover?

Retail sales, which refer to the consumption of goods, have recently seen a decrease in the rate of decline, raising expectations for a recovery in year-end consumption. The service industry is also on the rise, drawing attention to whether it can drive the long-depressed domestic demand.
 According to the National Statistical Portal (KOSIS) of Statistics Korea on the 3rd, the retail sales index (constant index) for the second quarter of this year is 101.8. The consumption level slightly exceeded the base year 2020 (100). Compared to the same period last year, it decreased by 0.2%.
 Retail sales have been declining for 13 consecutive quarters, breaking the record for the longest period. However, compared to the steep decline of 1-3% in 2023-2024, the second quarter of this year is evaluated as being close to 'flat'.
 The decline in retail sales in the second quarter was the smallest since the second quarter of 2022 (-0.2%) when domestic demand began to weaken. The slump in retail sales became pronounced after the 2022 pandemic. It peaked with a sharp drop of 3.1% in the second quarter of last year. The base effect from 'revenge consumption' during the pandemic and economic downturn were contributing factors.
 A government official said, "There are signs of a turnaround in the poor domestic demand of the first quarter," adding, "We expect to see improvements in consumption."
 Although a reversal was expected following consecutive interest rate cuts in October and November last year, the consumer sentiment at the end of the year fell again due to shocks such as the martial law in December and March and the Jeju Air accident. As a result, retail sales in the fourth quarter of last year fell by 2.0%, retreating further than the previous quarter (-1.5%). In the first quarter of this year, the decline narrowed to -0.3%, but the retail sales index (99.4) itself was below 100.
 On the other hand, expectations for the second half of the year have grown due to two supplementary budgets.
 The impact of the consumption coupons issued last month was not reflected in the second quarter indicators. Another pillar of consumption, service industry production, increased by 1.4% in the second quarter, showing a favorable trend. It was the largest increase in a year since the second quarter of last year (1.6%). Although service consumption and goods consumption tend to alternate between increasing and decreasing, the second quarter showed simultaneous improvement. With the improvement of retail sales and service industry production indicators related to domestic demand, expectations for recovery at the end of the year have increased.



junjun@fnnews.com Choi Yongjun Reporter