The South Korean economy is currently experiencing a paradoxical situationOn one hand, export activities have shown signs of improvement; on the other hand, domestic consumption and corporate investment seem to be on a downward spiralThe Bank of Korea disclosed on July 25 that the preliminary calculations for the nation's real GDP in the second quarter of this year have decreased by 0.2% compared to the previous quarterThis marks a return to negative growth for the Korean economy, echoing the contractions experienced in the last quarter of 2022. Such a trend is particularly concerning as it casts a shadow over the optimistic narratives surrounding the export sector's performance.

The retail landscape within South Korea has been dramatically affected by the decline in consumer spendingIconic shopping venues, such as department stores and large supermarkets, are bearing the brunt of this shift as sales volumes and transaction counts have been persistently declining since AprilReports show that while food sales have managed to maintain a semblance of stability — a reflection of essential consumption and rising prices — the sales figures for non-essential items, particularly in the fashion segment, have plummeted sharplyExperts have noted that this trend signifies a slump in economic conditions as consumers tend to restrict their spending to essential goods only.

Statistics from the Ministry of Trade, Industry and Energy reveal that sales volumes in major supermarkets decreased by 1.0% in May compared to the same month last year, and the average expenditure per person saw a reduction of 2.1%. Alarmingly, sales of home appliances and cultural products plummeted by 19.1%, demonstrating an unprecedented declineSimilarly, sales of sports gear and everyday household items also fell by 14.2% and 12.9%, respectivelyBeyond essential food items, there is a notable decrease in consumer willingness to make purchases across various categories, signaling a widespread downturn.

Department stores, too, have not fared well, seeing an even sharper decline in sales

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A nationwide average across department store sales channels revealed negative growth since April, when compared year-on-yearThe outdoor and sportswear categories, which once thrived amidst South Korea’s consumer culture, have witnessed brands like Black Yak, Columbia, and K2 recording approximately 10% decline in sales in the first half of the year aloneThese figures reflect a worrying trend for the fashion and retail sectors.

The restaurant industry is also feeling the pinch from diminishing consumer spendingAccording to the Ministry of Agriculture, Food and Rural Affairs, the outlook index for the food and beverage industry stood at 87.34 for the second quarter, well below the neutral benchmark of 100. A score below 100 indicates a preponderance of businesses reporting a bleak outlook rather than substantial improvement, suggesting growing concerns within this vital sector.

In June, while the Business Survey Index (BSI) for the manufacturing sector that relies on exports showed slight improvements at 99, the index for domestic demand businesses remained stagnant around 95. This growing chasm between the two indices hints at underlying issues that could stifle economic recovery if left unaddressed.

Simultaneously, high interest rates are exacerbating the decline in investment from companiesProjections indicate that construction investments may reduce by 1.2% until the end of the next year, and expected growth in equipment investments has been adjusted downward by 1%. Data from the Korean Statistical Office demonstrated that production across all industries fell by 0.7% month-on-month in May, with retail volumes down by 0.2% and equipment investment shrinking by 4.1%. This is the first time since July of the previous year that all these critical metrics have declined simultaneously.

In light of these developments, the Ministry of Economy and Finance recently revised its economic policy forecasts for the latter half of the year, raising its GDP growth rate prediction from 2.2% to 2.6%. This figure is notably higher than the Bank of Korea's own forecast of 2.5%. However, some experts caution that the uptick in exports hasn't adequately translated into robust internal demand recovery

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