Service spending declines for five straight quarters as consumers tighten belts

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Service spending declines for five straight quarters as consumers tighten belts

Published: 01 Oct. 2024, 06:00

Pedestrians pass by a vacant office for rent. [NEWS1]

The rising cost of living in Korea is forcing many consumers to tighten their belts, as evidenced by the recent decline in face-to-face service spending.

A recent study by the Bank of Korea revealed that real spending in sectors like accommodation and food services has contracted year-on-year for five consecutive quarters, marking the first such decline since 2000.

"My monthly mortgage payments alone are 1.5 million won ($1,140), and with the soaring cost of living, I've had to cut back on expenses, starting with dining out," Jang Ji-yong told the JoongAng Ilbo, an affiliate of the Korea JoongAng Daily.

Real household consumption expenditures, adjusted for inflation, grew by a mere 0.2 percent in the second quarter of this year, marking the fourth consecutive quarter of sluggish growth or decline. According to the Bank of Korea's recent analysis, this prolonged period of weak consumption is worse than the three-quarter downturn experienced during the 2008 global financial crisis.

Self-employed small business owners have been particularly hard hit by the current economic trend. The number of such workers this year dropped by 64,000 compared to the last year, continuing a 12-month downward streak.

The economic slowdown has affected nearly all sectors, with domestic consumption contracting across the board. In the second quarter, real spending declined in six out of 14 consumer expenditure categories, including discretionary items such as alcohol, tobacco, clothing, footwear, food, accommodation, transportation, education and household goods.

"The ongoing domestic slump, particularly among small businesses, has significantly dampened consumer sentiment," said Kim Dong-hyun, an economics professor at Korea University. "With high inflation and interest rates persisting, consumer confidence must rebound before spending picks up."

BY JEONG JIN-HO [yoon.seungjin.@joongang.co.kr]