[Weekly File] Gwangju Region's Economy Expected to Worsen Again This Year... What Are the Solutions?

'Retail and Distribution Sectors in Prolonged Slump Due to Weak Domestic Demand for Two Consecutive Years'
'Business Closures Difficult Amid Burden of Loan Repayments'
'Urgent Need for Tangible Policies Such as Financial Support'

This year, the economic situation in the Gwangju area is expected to worsen due to a combination of weakened consumer sentiment, the impeachment political crisis, and rising exchange rates. Asia Economy DB

With rising labor and raw material costs, weakened consumer sentiment, and a stagnant domestic market, compounded by the political turmoil of impeachment and a rising exchange rate, the Gwangju region's economy is expected to deteriorate even further this year.

In particular, as the vicious cycle of high inflation and weakened consumer sentiment continues, most small business owners are forced to continue operating just to make a living, highlighting the urgent need for practical measures such as financial support.

◇ Outlook for the Domestic Economy This Year

According to a survey conducted by the Gwangju Chamber of Commerce and Industry on 47 retail and distribution companies in the Gwangju area, the 'Retail Business Survey Index (RBSI)' for the first quarter of 2025 was 85, the same as the previous quarter (85), indicating that the economic downturn is expected to persist. The Retail Business Survey Index (RBSI) quantifies the business sentiment of distribution companies. If the index exceeds 100, it means more companies expect the next quarter's business conditions to improve compared to the current quarter; if it is below 100, the opposite is true.

Despite expectations for economic recovery due to the winter vacation and holiday season, and a trend of lowering the base interest rate, the main reasons for the continued downturn are analyzed to be instability in domestic and international affairs, stagnation of private consumption due to high inflation, and intensified competition between channels. Business sentiment has failed to recover to the baseline (100) for ten consecutive quarters.

The situation is the same for small business owners. According to a survey by the Korea Federation of SMEs on 800 small business owners in key sectors (wholesale and retail, accommodation and food service, and manufacturing), 95.0% expected that business conditions this year would not improve compared to last year. Of these, 55.6% predicted conditions would worsen, while 39.4% expected them to remain similar. Only 5.0% had a positive outlook.

◇ Management Burden from High Prices such as Logistics and Labor Costs

Both retail and distribution businesses in Gwangju and wholesale and retail businesses nationwide are feeling the management burden from prolonged high prices caused by rising labor, logistics, and raw material costs.

The Gwangju Chamber of Commerce and Industry analyzed that the most common difficulty expected in business operations this quarter was 'increased cost burden (63.8%)' such as labor, finance, logistics, and electricity. This was followed by 'deteriorating profitability (10.6%)', 'rising import prices due to exchange rate increases (8.5%)', 'intensified market competition (8.5%)', 'distribution regulations (4.3%)', and 'uncertainty in US administration policies (4.3%)'.

Regarding factors expected to impact the domestic consumer market this year, the largest number (72.3%) cited 'delayed recovery of consumer sentiment'. This was followed by 'increased cost burden (53.2%)' such as labor, finance, logistics, and electricity fees, 'policy uncertainty under the Trump administration (23.4%)', 'rising import prices due to exchange rate increases (19.1%)', 'intensified market competition (17.0%)', and 'expanding influence of Chinese e-commerce in the domestic market (8.5%)'.

Nationwide, the biggest business burden for wholesale and retail businesses was ▲high prices due to rising raw material and material costs (52.8%). This was followed by ▲sales decline due to domestic market stagnation (43.1%), ▲burden of loan repayment (36.4%), and ▲rising labor costs and difficulty securing personnel (35.5%).

In this situation, only 3.5% of small business owners are considering closing their businesses due to principal and interest repayments, indicating that giving up their livelihoods is not an easy choice. The Korea Federation of SMEs explained that this is because 78.5% of all small business startups are for livelihood reasons, such as difficulty finding employment and preparing for old age.

Among small business owners, 73.8% had taken out loans for business purposes. Of these, 34.9% reported an increase in their loan amount compared to the previous year. In addition, 93.7% (61.0% very burdensome, 32.7% somewhat burdensome) felt burdened by principal and interest repayment and interest payments, with the average loan interest rate being 4.99%, and 65.9% paying 5.0% or more.

◇ Urgent Need for Practical and Tangible Measures

With high inflation and consumer stagnation expected to worsen this year, there are increasing calls for countermeasures.

Nationwide, small business owners cited financial support (80.8%) as the most needed policy. This was followed by ▲support for sales channels (9.9%), ▲fostering entrepreneurial small business owners (2.4%), and ▲spreading a culture of win-win cooperation (1.9%).

The top priorities for the National Assembly and government to address this year (multiple responses) were ▲alleviating loan burdens due to high interest rates (63.4%), ▲addressing rising labor costs and labor shortages (63.0%), ▲expanding income tax deductions for small business owners (29.6%), and ▲alleviating energy cost burdens (28.3%).

A representative from the Gwangju Chamber of Commerce and Industry stated, "As domestic demand remains sluggish and profitability continues to deteriorate, the difficulties faced by regional retail and distribution companies are worsening due to increasing economic uncertainty. There is a need for large-scale government-led promotions and immediate implementation of measures to improve depressed consumer sentiment."

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