Nearly 1 mil. businesses closed in 2023 due to weak domestic demand

A pedestrian passes by an empty building in a once-bustling shopping district near Ewha Womans University in Seoul, Monday. Yonhap

Nearly one million individuals and companies in Korea reported closing their businesses last year, with weak earnings being the most common reason for the shutdowns, data from the National Tax Service (NTS) showed, Monday.

Experts say the latest data reflects a deepening crisis for small business owners and self-employed people, exacerbated by the continued impact of high interest rates and weak domestic demand.

According to the NTS, the number of reported business shutdowns rose to 986,487 last year from 867,292 cases in 2022.

The latest data represents the highest number of business shutdowns recorded since the government began keeping track of such figures in 2006.

During the COVID-19 pandemic from 2020 to 2022, the number of business shutdowns remained at around 800,000, but surged dramatically last year.

Among the 986,487 reported shutdowns, 482,183 were due to sluggish business, the second-largest figure since the 2008 global financial crisis, and a marked increase from the 406,225 closures seen in 2022.

Another 451,203 businesses did not disclose specific reasons for their closure, while 40,369 cited business transfers and acquisitions.

By sector, retail businesses saw the highest number of closures at 276,535, followed by the service industry at 217,821, and restaurants at 158,279. Each of these industries is strongly influenced by domestic demand.

Due to the depressed real estate market last year, the rental and construction segments also suffered, with 94,330 and 48,608 businesses filing for closure, respectively.

Meanwhile, Statistics Korea data revealed that the number of former self-employed individuals who became jobless after shutting down their businesses rose by more than 20 percent over the past year.

The data shows that the monthly average number of unemployed people was 918,000 in the first half of this year, up 6.9 percent compared to the same period last year.

Among the unemployed, 26,000 individuals were former self-employed workers, marking a 23.1 percent increase from the previous year. This increase reflects their failure to be reemployed despite efforts to secure new jobs after closing their businesses.

The number of economically inactive former self-employed individuals has grown to an average of 268,000 per month, representing a 6 percent increase from the year before.

Economically inactive individuals are defined as those aged over 15 who are neither employed nor trying to find jobs.

A business shutdown notice is written on a styrofoam box displayed at an empty fish shop in a traditional market in Seoul, Monday. Yonhap

Weak domestic demand is anticipated to cause more closures in the restaurant, accommodation and wholesale and retail sectors for the time being.

In its monthly report published on July 8, state-run Korea Development Institute said, “Despite high growth in exports, Korea’s domestic demand has yet to exhibit signs of a recovery trend, resulting in a somewhat tepid improvement in overall economic conditions.”

On the other hand, the Ministry of Economy and Finance said in the Green Book, its monthly economic assessment report published last Friday, that domestic demand is showing signs of recovering.

“There is a chance that domestic demand could recover in the second half of this year, as prices seem to be stabilizing and the key interest rate could go down,” said Kim Gwang-seok, head of economic research at the Institute for Korean Economy and Industry.

“But it is highly likely that more small business owners and the self-employed will continue to shut down their businesses, as an immediate recovery in sales, which will be enough to resolve their debt burden, is unlikely," he added.