Why consumer sentiment improves despite economic downturn

Shoppers look at handbags at a Shinsegae Department Store branch in Uijeongbu, Gyeonggi Province, June 6. Yonhap

Consumers in Korea appear to be opening up their wallets over growing optimism toward the Lee Jae Myung administration despite a protracted economic downturn that has long weakened purchasing power, according to economists, Wednesday.

In addition, consumer sentiment is possibly beginning to improve as the political uncertainty that has haunted the Korean economy for months substantially eased after Lee began his term, June 4.

The experts also said the upward trend on the stock market and surging home prices in Seoul, both associated with the Lee government’s policy direction, may be stimulating consumer spending.

“The honeymoon effect is believed to be spreading to consumer sentiment,” Inha University economics professor Shin Il-soon said, referring to short-term increased economic performance after a change in leadership.

Shin referred to rise in sales in the retail industry in the second week of June, which, according to him, “was appropriate timing to get a quick glance at the economic expectation toward the new administration.”

Citing data provider Aicel, the professor said credit card spending at convenience store chain CU went up 17.4 percent compared to a year earlier.

Sales also rose in other parts of the retail industry over the same time period. The increase in credit card spending was 18.4 percent at supermarket chain GS The Fresh, 12.2 percent at Hyundai Department Store and 14 percent at Lotte Shopping-run businesses channels — Lotte Mart, Lotte Department Store and Lotte Hi-Mart.

Hotels, which are closely related to the retail sector, have enjoyed a sales boom as well. The revenue increase from last year was 55.8 percent at The Shilla Seoul, 24.4 percent at Grand Walkerhill Seoul and 38.1 percent at Grand InterContinental Seoul Parnas.

“Many consumers are finally following through on postponed gatherings and trips domestically after the presidential election,” Shin said, noting that the martial law fiasco surrounding now-ousted President Yoon Suk Yeol in December 2024 had dampened domestic demand.

The improved retail sales come as data still shows indications of Korea’s economic slowdown. According to a Bank of Korea report, the country’s gross domestic product contracted 0.2 percent in the first quarter of 2025, marking the first economic contraction in nine months.

Such contraction was behind a downward revision for Korea’s 2025 economic forecast, which is estimated in the mid-1 percent range by financial institutions here and abroad.

Kim Dae-jong, a Sejong University business professor, said that the benchmark KOSPI’s gain over the Lee administration’s retail investor-friendly stock policy is behind the signs of improvement in consumer confidence.

“Retail investors may feel as though they’ve suddenly acquired wealth,” he said, with reference to the KOSPI nearing the 3,000-point milestone.

Kim Je-kyung, a chief consultant at real estate agency Tumi, voiced a similar view with regard to homeowners in Seoul and surging housing prices in the capital city.

According to a Korea Real Estate Board survey, apartment prices in Seoul went up 0.26 percent in the second week of June, compared to the previous week. This marked the steepest week-over-week increase this year.

“The hike was attributable to the new government’s stance that, unlike previous liberal administrations, it would not try to control housing prices through taxation,” Kim said. “And some homeowners may have believed they became richer, and spent more.”