In South Korea, experts are calling for urgent discussions on drawing up a supplementary budget to boost the economy as the stagnation in domestic demand and Trump’s tariff war continue.
According to Statistics Korea on Tuesday, the retail sales index, which reflects consumer spending trends, fell by 2.2% compared to the previous year. This marks the largest decline since the 2003 credit card crisis (-3.2%).
Moreover, this decline has persisted for three consecutive years since 2022, setting a record for the longest downturn.
While industrial production grew by 1.7% last year, there was a significant disparity across sectors for investment, another key component of domestic demand.
Capital investment rose by 4.1%, but construction investment, as measured by construction output, declined by 4.9% overall. This was due to mixed results in building construction (-6.9%) and civil engineering (+1.8%).
While domestic demand remained sluggish last year, particularly in consumption and construction, political instability due to martial law and impeachment has recently further exacerbated it.
There are growing concerns that exports, which have been supporting the Korean economy, will also be dampened. Exports in January this year fell 10.3% year-on-year, ending a 16-month growth streak due to a decrease in working days with the early Lunar New Year holiday.
The escalation of Trump’s tariff war is adding to global economic uncertainty. On February 4, President Donald Trump signed an executive order imposing additional tariffs of 25% on Canadian and Mexican products and 10% on Chinese goods.
Although South Korea is not among the targeted countries, it will inevitably face both direct and indirect impacts on trade in the future.
As political instability further dampens domestic demand, there are growing calls for a supplementary budget. Both opposition and ruling parties now acknowledge its necessity.
Woo Won Shik, Speaker of the National Assembly of South Korea, proposed drawing up a supplementary budget to stimulate the economy and boost consumption and investment during the opening ceremony of the February provisional session the previous day. He suggested that despite the different opinions between the ruling and opposition parties, both parties should first agree on the timing and scale of the budget and then work together on the specifics.
Earlier, the Ministry of Strategy and Finance of Korea said it would consider additional fiscal measures based on economic indicators in the first quarter of this year.
However, experts stress that now is the critical time to discuss the supplementary budget.
They argue that even if the supplementary budget is implemented after the first half of the year, the government should now demonstrate its commitment to economic stimulus to stabilize consumer and investor confidence.
Kim Jeong Sik, an emeritus professor of economics at Yonsei University, stated, “Government policies heavily influence economic sentiment. Due to the lack of consumption and investment confidence, a supplementary budget is even more needed now.”
He notably identified the construction sector, which has faced prolonged sluggishness, as an area requiring focused investment.
Kim noted, “The construction sector closely affects low-income and unskilled employment, and it has substantial ripple effects on other areas of domestic demand. Investing in transportation infrastructure in low-income neighborhoods could stimulate domestic demand and help alleviate wealth inequality.”
