What: Political instability in South Korea triggers a 0.6% retail sales decline, whilst industrial output shows unexpected resilience with 4.6% growth.

Why it is important: The retail decline despite strong industrial output underscores the immediate impact of political instability on consumer behaviour, particularly significant in a market already experiencing structural changes in shopping patterns.

South Korea's retail sector experienced a notable downturn in December 2024, marking the fourth consecutive month without growth as sales declined by 0.6%. This deterioration coincided with President Yoon Suk Yeol's unprecedented martial law declaration, which significantly disrupted the traditionally busy year-end shopping season. The impact was particularly evident in specific sectors, with car and home appliance sales dropping 4.1% and entertainment spending falling 0.6%. The political upheaval's effect on consumer confidence was further emphasised by the won's descent to a 15-year low, culminating in the historic arrest of the sitting president. However, the industrial sector demonstrated remarkable resilience, with factory output surging 4.6% month-on-month, primarily driven by strong performance in semiconductor and automotive production. This stark contrast between consumer spending and industrial output highlights the complex economic implications of political instability, particularly in a market already navigating significant structural changes in retail patterns.

IADS Notes: The current political upheaval's impact on South Korean retail sales should be viewed within the context of broader market transformations. While major department stores demonstrated resilience in May 2024 with a 3.8% combined sales growth, the sector was already showing signs of strain by January 2025, with growth falling below 1% and increasing polarisation between metropolitan and regional stores. The martial law declaration's negative effect on consumer spending comes at a particularly challenging time, as February 2024 marked a historic shift with online shopping surpassing in-store sales for the first time, capturing 50.5% of the market. This political disruption could accelerate the divergent performance patterns already observed in February 2024 between different retail formats, as evidenced by the contrasting fortunes of Emart's losses versus Shinsegae's department store gains. The current situation adds another layer of complexity to an already evolving retail landscape, potentially deepening the divide between high-performing metropolitan stores and struggling regional outlets.

Political upheaval dents South Korea retail sales