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Korea's spending declines during May holiday period despite hopes for consumption boost

Published: 28 May. 2025, 10:03

A special lease notice is posted on a storefront in Myeong-dong, Jung District, central Seoul, on May 25. [YONHAP]

Korea’s consumer spending sharply declined during the early May holiday period, multiple indicators showed Wednesday, despite expectations of a boost in domestic consumption driven by the long holiday.

Credit card spending from May 3 to 9 fell 12.7 percent year-on-year and 18.4 percent from the previous week, according to data released by Statistics Korea on Wednesday.

The drop is notable, given that the period included Children’s Day on May 5 and a substitute holiday on May 6, both of which contributed to a four-day stretch of continuous holidays.

Online spending during the same period also declined 5.1 percent compared to a year earlier and 18.9 percent from the prior week. Shopping centers also saw less traffic. Card transactions at physical merchants dropped even more steeply, down 13.4 percent year-on-year and 22.7 percent week-on-week.

Bank of Korea Gov. Rhee Chang-yong highlighted the importance of consumption data for upcoming fiscal policy decisions during a press briefing on May 6.

“Our interest rate decisions will be based on data,” he said. “Of particular concern is how much consumption increases during the holidays.”

The central bank is widely expected to revise its forecast for Korea’s real GDP growth rate for this year from 1.5 percent to a significantly lower figure during its upcoming policy announcement on Thursday. Markets also anticipate a rate cut from the current 2.75 percent to 2.50 percent.

A pedestrian walks by shuttered down shops in the Jonggak Underground Shopping Arcade in Jongno District, central Seoul, on May 23. [NEWS1]

Consumer spending has been sluggish since early this year to become a structural issue. Private consumption shrank 0.1 percent in the first quarter from the previous quarter due to weak spending on services such as entertainment and medical care. Its contribution to overall GDP growth dropped from 0.1 percentage points in the fourth quarter of 2024 to zero in the first quarter of this year.

The outlook also remains grim. The Ministry of Economy and Finance noted in its May 16 report on recent economic conditions that domestic demand, including consumption and construction investment, is recovering slowly. It also warned of mounting downside risks to the economy from weakening exports, exacerbated by U.S. tariffs and global uncertainty.

The Korea Development Institute (KDI) echoed the concern in its May 14 report, slashing its 2025 growth outlook for Korea from 1.6 percent to 0.8 percent.

“Political instability is weighing on consumer sentiment and uncertainty abroad continues to grow,” the report said. “As a result, there are no visible signs of recovery in domestic demand.”

KDI also pointed to a slowdown in services spending, particularly in sectors like lodging and food, as consumer confidence continues to erode.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY JEONG HYE-JEONG [[email protected]]