Domestic Demand Shaken by Third Wave of COVID-19... Card Approval Amount Negative for Two Consecutive Months

Ministry of Economy and Finance Announces February Recent Economic Trends
"Domestic Demand Shrinks Centered on Face-to-Face Services... Employment Indicators Significantly Slow Down"

On the 26th during lunchtime, the Myeongdong Underground Shopping Center in Jung-gu, Seoul was quiet due to the impact of the novel coronavirus disease (COVID-19). On the same day, the Bank of Korea announced that the Korean economy contracted for the first time in 22 years since the foreign exchange crisis. Photo by Moon Honam munonam@

[Sejong=Asia Economy Reporter Kim Hyunjung] As the domestic economy contracted due to the impact of the third wave of COVID-19, domestic card approval amounts continued to decline for two consecutive months. Regarding the overall economic situation in South Korea, the government has maintained concerns about the 'uncertainty of the real economy' for seven months.

On the 19th, the Ministry of Economy and Finance announced the 'Recent Economic Trends (Green Book) for January 2021,' which included these details. The Green Book evaluated, "Our economy has seen improvements in manufacturing and investment supported by the recovery in exports; however, due to the third wave of COVID-19 and strengthened social distancing measures, domestic demand contraction centered on face-to-face service industries continues, and employment indicators have significantly weakened, resulting in ongoing uncertainty in the real economy." The Ministry has issued the diagnosis of 'real economy uncertainty' regarding the domestic economic situation for seven consecutive months since July last year.

Consistent with the government's assessment, recent indicators related to industrial activities such as exports have improved, but retail sales have decreased, and the number of employed persons has sharply declined, indicating persistent economic uncertainty. In December, service sector production decreased by 2.2% year-on-year, while mining and manufacturing production increased by 3.4%. Last month, exports rose 11.4% year-on-year due to improvements in IT exports and an increase of one working day, recording $2.13 billion on a daily average basis, which is a 6.5% increase. However, December retail sales fell by 2.0% compared to the previous year, and the number of employed persons in January sharply dropped by 982,000 compared to a year earlier, showing signs of an 'employment shock.'

Based on domestic card approval amounts, last month saw a 2.0% decrease year-on-year, continuing the decline for two consecutive months following the previous month's -3.9%. This marks the first continuous decline in nine months since March (-4.2%) and April (-5.7%) last year. As face-to-face consumption became difficult, department store and discount store sales fell by 6.7% and 12.4% year-on-year, respectively, and the number of Chinese tourists plummeted by 98.5% due to the resurgence of COVID-19. This is the largest decline in seven months since June last year (98.7%). However, domestic sales of Korean passenger cars increased by 20.9% year-on-year due to the base effect from the end of the individual consumption tax cut in January last year, new car effects, and an increase in business days, and online sales, reflecting non-face-to-face consumption, also rose by 18.1%.

As of December, the Consumer Sentiment Index (CSI) stood at 95.4, up 4.2 points from the previous month, and the Business Survey Index (BSI) for manufacturing performance rose 3 points to 85. The outlook for February improved by 4 points to 81.

The real estate market is still on an upward trend, but the rate of increase has slowed. Last month, housing market sale prices rose by 0.79%, and jeonse (long-term lease) prices increased by 0.71%, showing a more moderate rise compared to the previous month (0.90%, 0.97%).

Kim Younghoon, head of the Economic Analysis Division at the Ministry of Economy and Finance, explained, "Externally, since the fourth quarter of last year, the impact of the COVID-19 resurgence has somewhat weakened the improvement in real indicators of major countries. However, with the recent slowdown in global spread, expanded vaccination, and large-scale economic stimulus measures by major countries, expectations for economic recovery are spreading." He added, "We will speedily implement additional support for affected groups due to the prolonged COVID-19 pandemic, strengthen blind spots, and prepare measures to stabilize the employment market."

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