South Korea prepares measures to boost spending as retail sales plunge

A Hanwha Aerospace engineer works on a KAAV (Korean Amphibious Assault Vehicle) at Hanwha Aerospace factory in Changwon, South Korea, March 16, 2023. REUTERS/Kim Hong-Ji/File photo

SEOUL  -South Korea’s government prepared measures to boost consumer spending as data on Thursday showed retail sales plunged in July by the most in three years amid high inflation and aggressive interest rate hikes.

Retail sales dropped 3.2 percent on a seasonally adjusted basis in July from a month earlier, the first monthly fall in three after gains of 0.9 percent in June and 0.6 percent in May, according to Statistics Korea. It was the biggest drop since July 2020.

Sales of durable goods dropped 5.1 percent , led by automobiles after recent tax cuts expired, while sales of other semi-durable and non-durable goods also declined, amid heavy rain.

The July data comes after another survey showed last week South Korea’s consumer sentiment weakened in August for the first time in six months on growing worries about sluggish growth.

Soon after the data, the government released a 58-page list of measures to ease the consumer burden and boost spending, especially around the upcoming Chuseok thanksgiving holidays in late September.

The measures include an extra day for the holiday period, distribution of shopping vouchers and price discounts, while the government said it would announce separate plans next month to attract more Chinese tourists.

“As the number of foreign tourists has not yet fully recovered to pre-pandemic levels, there is room for consumption to improve,” said Jeemin Bang, associate economist at Moody’s Analytics.

Last week, South Korea’s central bank held interest rates steady for a fifth straight meeting, with the governor tempering the hawkish stance as policymakers turn their attention to fine-tuning monetary settings amid softer inflation and slowing growth.

Thursday’s data also showed South Korea’s factory output fell 2 percent in July, worse than a 1.5 percent fall in June and a 0.4-percent loss tipped in a Reuters survey. It was the fastest fall in five months.

Facility investment also slumped 8.9percent , much faster than the 1.1percent fall the previous month. It was the fastest since March 2012.