Retail Sales Drop Sharply for the First Time in 17 Years... Even Disaster Relief Funds Fall Short

- December 2020 and Annual Industrial Activity Trends
- Food and Accommodation Service Sales Plummet Due to Reduced Outings from Social Distancing
- Duty-Free Retail Sales Down 37.5% Year-on-Year... Largest Decline Recorded
- Manufacturing Average Operating Rate Hits 71.3%, Lowest in 22 Years

[Sejong=Asia Economy Reporter Son Seonhee] Last year's annual industrial activity trends clearly revealed the impact of COVID-19 on our economy. Due to social distancing measures reducing outings, sales in food and accommodation services plummeted, and cosmetics sales declined, but non-store retail (online shopping) experienced a boom. In investment, the machinery sector, including semiconductors where demand surged, improved, while transportation equipment such as aircraft retreated.

According to the 'December 2020 and Annual Industrial Activity Trends' released by Statistics Korea on the 29th, last year's retail sales increased in durable goods such as passenger cars (10.9%) but decreased by 0.2% overall due to declines in semi-durable goods like clothing (-12.2%) and non-durable goods like cosmetics (-0.4%). This was influenced by reduced face-to-face outings to prevent COVID-19.

◇ Retail sales down 0.2%... third decline since the foreign exchange crisis and card crisis = The retail sales index recorded a negative figure for the third time since related statistics began in 1995. The first decline was during the 1998 foreign exchange crisis, and the second during the 2003 card crisis.

Especially, duty-free store retail sales, hit hard by the halt of foreign tourists due to COVID-19, dropped 37.5% year-on-year, marking the largest decrease across industries. Kim Bokyung, head of the Industrial Trends Division at Statistics Korea, explained at a briefing that this was due to "(COVID-19 prevention measures, etc.) reduced outdoor activities and a sharp decline in foreign tourists." Additionally, specialty retail stores fell by 10.8%, and department stores by 10.6%. On the other hand, non-store retail such as online shopping surged by 22.9% due to a significant increase in contactless transactions.

Notably, passenger cars and fuel retail stores increased by 7.2%, influenced by avoidance of public transportation and reductions in individual consumption tax. Supermarkets and general merchandise stores (1.6%), large discount stores (1.2%), and convenience stores (0.8%) also saw slight increases as dining out was restrained.

The government's disaster relief fund effect is believed to have been included in retail sales, but Statistics Korea stated it cannot specify the extent of the impact with concrete figures. Professor Sung Taeyoon of Yonsei University's Department of Economics said, "Even with the same fiscal spending, the impact can vary depending on how it is distributed. If people have stable jobs, it may lead to savings, but otherwise, it can lead to consumption, so selective support should be emphasized more."

◇ Accelerated plunge in manufacturing average operating rate... domestic demand hit = The manufacturing sector, the backbone of the Korean economy, was not spared from the COVID-19 crisis. Last year's average manufacturing operating rate was 71.3%, the lowest in 22 years since the indicator began in 1998 when it was 67.6%. Although the average manufacturing operating rate has been hitting record lows annually in recent years, the problem is that the rate of decline has accelerated. It fell by 1.9 percentage points last year compared to a 0.06 percentage point decrease in 2019.

Mining and manufacturing production decreased in automobiles and metal processing but increased in semiconductors and machinery equipment, resulting in a 0.4% increase year-on-year. However, mining and manufacturing shipments suffered a severe blow in domestic demand, recording -2.1%, marking a second consecutive year of decline following last year's -0.7%.

Among major indicators, facility investment rose 6.0%, returning to an upward trend for the first time in three years. However, this was largely due to the base effect from two years of sluggishness. Investment in machinery such as special industrial machinery (8.6%) led the rebound, while construction performance declined by 2.3% year-on-year due to poor building construction results. Construction orders increased by 15.8%, driven by growth in factory and warehouse construction.

Kim said, "In mining and manufacturing, exports increased in the second half of the year, especially with improvements in the semiconductor market, leading to increases in semiconductors and machinery equipment. Also, facility investment showed good performance as semiconductor industry facility investments increased."

This content was produced with the assistance of AI translation services.