The government attached a temporary holiday to the Lunar New Year holiday in order to revive the long-stagnant domestic demand, but there was no effect on consumption stimulation. Rather, the temporary holiday was pointed out as a major cause of the decline in production and exports.
According to the 'January 2025 Industrial Activity Trends' announced by the Statistics Korea on the 4th, the retail sales index for January was 101.2 (seasonally adjusted), down 0.6% from the previous month. Sales increased for durable goods such as communication devices and computers, but decreased for semi-durable goods like clothing (-2.6%) and non-durable goods such as cosmetics (-0.5%).
Retail sales have been declining for 11 consecutive quarters since they decreased compared to the same period last year in the second quarter of 2022.
The production of the service sector, which can gauge service consumption, also decreased by 0.8% compared to the previous month. The production of retail and wholesale, and automobile sales all declined, decreasing by 4.0% compared to the previous month. The transportation and warehousing sector also decreased by 3.8%, with declines in both air transport and water transport, while the financial and insurance sector dropped by 1.5%. However, the accommodation and restaurant sector showed a 1.4% increase compared to the previous month.
For the government, which designated a temporary holiday during the Lunar New Year to stimulate domestic demand, it means not achieving the expected stimulus effect. Although the government did not clearly revive consumption, it interpreted that it managed to avoid a further decline. Lee Doo-won, an economic trends statistics advisor at Statistics Korea, noted, "There has been a capture of retail sales stabilizing after a long period of decline compared to the same month last year."
Looking at the indicators alone, it is clearer that production has decreased due to a reduction in working days rather than retail sales showing stability compared to the same month last year. Production in January decreased by 3.5% compared to the same month last year. In particular, manufacturing production fell by 4.2% compared to the same month last year.
The impact on manufacturing shipments was more significant. In January, manufacturing shipments decreased by 7.4% compared to the same month last year. Shipments in major sectors with high weights, such as automobiles (-13.0%), electrical equipment (-17.0%), and primary metal (-11.0%) decreased sharply.
The manufacturing inventory/shipping ratio increased by 6.5 percentage points as shipments decreased significantly (-0.3%) compared to inventory.
Korea's exports in January decreased by more than 10% compared to the same month last year, largely due to the impact of working days. Limitations on end-of-month shipments and loading operations triggered a shift in exports, which had continued to show positive growth for 15 months, into negative territory.
The leading index cyclical fluctuation, which forecasts future economic conditions, fell by 0.3 points compared to the previous month. It has declined for two consecutive months following a drop of -0.1 points in the previous month, with the decline growing larger. This is interpreted as an indication that future economic prospects are not good. In particular, the economic sentiment index has continued to decline for five consecutive months since September of last year.
The outlook for domestic demand is also uncertain. Earlier, the Bank of Korea adjusted its economic growth forecast for this year down by 0.4 percentage points to 1.5%, as presented in the 'Revised Economic Outlook' announced on the 25th of last month. The Bank of Korea stated in its economic outlook report that regarding future consumption trends, "household consumption is expected to continue a poor trend for the time being," and that "the deterioration of the global trade environment is a factor limiting the recovery of household consumption through weakening employment and sentiment, and a decrease in household income improvements."
Cho Sung-jung, an economic analysis officer at the Ministry of Strategy and Finance, said, "As external uncertainty expands, downward pressure on the economy is increasing, so we will accelerate efforts to recover domestic demand and people's livelihoods," adding, "We will strengthen support for companies affected by the imposition of tariffs in the U.S., such as introducing export vouchers in response to tariffs, and expand liquidity support, including the largest provision of trade finance at 366 trillion won."