South Korea’s domestic consumption has entered a sustained decline, not due to temporary shocks like COVID-19 or inflation, but as a result of entrenched structural challenges, including a rapidly aging population, evolving labor market dynamics, and shifts in the country’s industrial landscape. (Image created by AI/ChatGPT)
SEOUL, April 24 (Korea Bizwire) — South Korea’s domestic consumption has entered a prolonged downward trend, driven not by short-term disruptions like COVID-19 or inflation, but by deep-rooted structural issues such as demographic aging, employment patterns, and industrial shifts, according to a new report released on April 23, 2025, by the Korea Chamber of Commerce and Industry (KCCI).
The report, “Trends in Domestic Consumption and International Comparison,” shows that while domestic spending rose steadily through 1996, it began to decline sharply after key economic shocks.
The average annual consumption growth rate dropped from 9.1% during 1988–1996 to 4.5% following the 1997 Asian financial crisis, then further declined to 3.1% after the 2003 credit card crisis, 2.4% post-2008 global financial crisis, and just 1.2% following the onset of the pandemic in 2020.
This decline has also reduced the share of domestic consumption in the country’s GDP—from 56.3% in 2002 to just 47.1% by 2021.
The KCCI attributes this trend in large part to demographic changes, particularly the rapid aging of the population. South Koreans aged 65 and older now account for 20% of the population, up from 7% in 2000, but their average propensity to consume has declined—from 81.3% to 64.6% as of the fourth quarter of 2024—making them the most frugal age group.
Another major drag on consumption is the concentration of household assets in real estate. Real estate comprises 70.5% of household wealth—rising to 77.3% when rental deposits are included—leaving households less liquid for spending.
Coupled with soaring household debt, which has quadrupled from 465 trillion won in 2002 to 1,927 trillion won by the end of 2024, and increasing interest burdens, many families are forced to tighten spending further.
As loan delinquency rates among self-employed individuals continue to rise, the number of businesses closing due to overwhelming debt burdens is steadily increasing. (Yonhap)
The report also points to a weakening job creation effect from domestic industries. The employment inducement coefficient—the number of jobs created per 1 billion won in final demand—has dropped significantly in manufacturing, from 15.4 in 2000 to 6.3 in 2020, particularly in export-driven sectors like semiconductors and chemicals.
To combat these challenges, the KCCI recommends adopting a dual strategy. In the short term, it suggests a “Recession Attacking” stimulus approach modeled after post-2008 measures in the UK, which pairs economic relief with long-term investment in industrial infrastructure.
For the long run, the report urges structural reforms. These include fostering high-employment service sectors such as artificial intelligence and software; increasing the spending capacity of the elderly; managing real estate lending and prices to ease household debt; and exploring immigration policies to offset population decline.
“A strong domestic market is essential to cushion external shocks and ensure sustainable growth,” said Kim Hyun-soo, head of KCCI’s Economic Policy Division. “Alongside proactive future investments, we must carry out structural reforms to build a more resilient economic foundation.”
M. H. Lee (mhlee@koreabizwire.com)
