Semiconductors Drive Growth While Domestic Consumption Slips for First Time in Five Quarters
In contrast to strong exports driven by semiconductors, domestic consumption fell for the first time in five quarters. According to the National Data Agency's national statistics portal (KOSIS) and industrial activity trends, the retail sales index for the third quarter of this year (July-September), measured in real terms adjusted for price changes, fell 0.5 percent year-on-year, marking the first negative reading since the second quarter of last year. The gap across sectors and sales channels also widened.
The government cited the base effect from last year's livelihood recovery consumption coupons (regionally restricted vouchers issued to stimulate spending) as a background factor behind the decline. It also explained that summer vacations and strikes in the auto industry reduced passenger car sales, while home appliance rebate programs in the first half pulled durable goods consumption forward.
The weakness was broad across product categories. Retail sales of durable goods fell 7.0 percent from a year earlier, with passenger car sales down 11.3 percent. Even excluding passenger cars, retail sales grew only 0.9 percent, a slowdown from gains of 2.5 percent in the first quarter and 2.4 percent in the second. Semi-durable goods such as clothing fell 0.8 percent, while only non-durable goods such as food and beverages and cosmetics rose 2.7 percent.
By sales channel, the prolonged slump at hypermarkets contrasted with a rebound at duty-free shops and department stores. Hypermarket retail sales fell 1.9 percent, extending their decline to a tenth consecutive quarter. Sales have fallen continuously since the second quarter of 2024, the longest stretch of decline since statistics began in 2010. Still, the drop was smaller than the record 9.4 percent plunge in the second quarter. Meanwhile, duty-free shops, buoyed by tourist demand, saw sales rise 3.0 percent, their strongest growth in nine quarters since the second quarter of 2024 (7.9 percent). Department store sales also rose 4.3 percent, marking a fifth straight quarter of growth.
The services sector showed similar divergence across industries. Overall services production rose 3.4 percent from a year earlier, but lodging and restaurants fell 2.2 percent — the first decline in five quarters since the second quarter of last year (-1.9 percent) and the steepest since the first quarter of last year (-3.3 percent). Wholesale and retail also fell 0.2 percent, turning negative for the first time in seven quarters since the fourth quarter of 2024 (-1.5 percent). In contrast, finance and insurance production jumped 9.2 percent, the highest growth rate in 13 quarters since the second quarter of 2023 (9.5 percent).
The government analyzed that the widening gap in domestic demand reflects how the semiconductor-led growth effect has failed to sufficiently reach households through employment and income. It acknowledged that cost-of-living burdens persist and structural issues such as sectoral polarization remain, and vowed to redouble efforts to stabilize livelihoods and ease polarization.
