Due to the effect of the people's livelihood recovery consumption coupons issued by the government, consumption increased the most in 29 months last month. Sales of telecommunications equipment and home appliances, as well as domestic service industries such as gyms and beauty salons, also rebounded. On the other hand, key export industries like automobiles and semiconductors recorded their largest decline in a year due to the impact of tariff implementation and vacation and strike effects.
According to the 'July industrial activity trend' released by the Statistics Korea on 29th, the retail sales index increased by 2.5% compared to the previous month, marking the largest increase in 29 months since February 2023 (6.1%). Compared to the same month last year, it also increased by 2.4%, marking the largest increase in 42 months.
◇ The effect of 'home appliance rebates' added to consumption coupons drives consumption rebound
By item, sales of durable goods increased by 5.4%. The release of new products like the Galaxy Z Flip and Fold 7 led telecommunications equipment and computer sales to surge by 16.8%, and sales of home appliances rose by 6.6%. Sales of food and beverages (1.1%) and clothing (2.7%) also increased, leading to an expansion in sales of non-durable and semi-durable goods.
The people's livelihood recovery consumption coupons stimulated service consumption, including dining out, beauty services, and gyms. Production in the service industry increased by 0.2% from the previous month. Many sectors, including wholesale and retail (3.3%), information and communications (3.1%), and accommodation and food service (2.0%), saw increased production. Personal services, such as gyms, beauty salons, and auto repair, increased by 8.4%, while art, sports, and leisure also grew by 7.5%. Out of the total 13 industries, 10 recorded positive growth.
Lee Du-won, an official at the Statistics Korea's Economic Trends Statistics Review Office, said, "The consumption coupons issued last month, coupled with the energy-efficient home appliance rebate program and the release of new telecommunications products, led to the consumption rebound. Since the timing of the consumption coupon issuance was at the end of July, the effects may continue into August."
On the other hand, key export industries such as automobiles and semiconductors struggled. The overall industrial production index (seasonally adjusted) increased by 0.3% to 114.4 (2020=100), continuing an upward trend for two consecutive months.
Industrial production increased by 0.3% due to rises in electronics components (20.9%) and machinery and equipment (6.5%), but automotive production (-7.3%) and semiconductor production (-3.6%) fell sharply. The automotive sector recorded its largest decline in a year since last July (-11.4%), impacted by the summer vacation season, partial strikes, and the implementation of tariffs on electric vehicles in the U.S. Similarly, the semiconductor industry showed signs of contraction due to base effects from the previous month and adjustments in some items, marking its largest drop since last July (-6.9%). Steel production barely rose by 0.1%, while non-ferrous metals fell by 4.3%.
◇ Ongoing construction slump... Equipment investment rebounds
The construction sector continued to experience sluggish performance. Construction output fell by 1.0% compared to the previous month, returning to negative territory. Although civil engineering increased by 10.1%, residential and non-residential construction decreased by 4.8%. The value of construction orders also dropped by 5.5% compared to the same month last year.
Conversely, equipment investment increased by 7.9%, marking a rebound after five months. Investments in transport equipment (18.1%) and machinery (3.7%) both saw increases.
The composite leading index showed mixed results. The coincident index, which reflects the current economic situation, decreased by 0.1 points, while the leading index, which predicts future economic conditions, rose by 0.5 points.
The government expects that if the flow of consumption continues and the construction slump eases, domestic demand will gradually recover. Jo Sung-jung, director of the Economic Analysis Division of the Ministry of Economy and Finance, noted, "The negative impact in the construction sector has been on a declining trend since the first quarter of this year, and in August, consumer sentiment is also showing positive signs, reaching its highest level in 7 years and 7 months. Although there are still burdens in the construction field, we expect to see signs of economic recovery in the third quarter."
Experts point out that follow-up measures are necessary to ensure that the recovery in consumption does not end up being a temporary effect. Professor Lee Jung-hee of the Department of Economics at Chung-Ang University said, "While it is true that consumption has revived across industries in the short term due to the effect of consumption coupons, it is still concentrated in certain industries. Given the potential for a contraction in exports due to the effects of tariffs, it is crucial to establish follow-up measures to sustain the impetus for domestic consumption."