🚨 Economic Downward Pressure Continues for 7th Month: Consumption Vouchers Raise Hope for Domestic Recovery

Today Korean Economic News | 2025.07.19

📌 Manufacturing and Service Industries Both Struggling, But Consumer Sentiment Improves for 2 Months

💬 The government officially diagnosed that Korea's economic downward pressure has continued for the 7th month. Overall economic recovery is progressing slowly as manufacturing shipments decrease and service industry production remains weak. Car and machinery production drops, and logistics and retail businesses are particularly struggling. However, the consumer sentiment index has risen for two consecutive months, showing positive signals. People are watching whether consumption vouchers from the second supplementary budget can spark domestic economic recovery.

1️⃣ Easy Explanation

Korea's economy has not been improving for 7 months now. However, consumers' feelings are getting a bit better recently, so people are interested to see if the government's consumption voucher policy can help start economic recovery.

"Economic downward pressure" is a difficult term, but it simply means the economy keeps getting pushed toward getting worse. It's like a car rolling backward on a hill - the economy wants to get better, but the forces making it worse are stronger.

Looking at specific problems, first, factories are making and shipping fewer products than before. Car factories and machinery factories are especially producing less than they used to. This means demand at home and abroad has decreased, or companies are investing less money.

Service businesses are also having difficulties. Shipping companies that move goods and retail stores like supermarkets and department stores are particularly struggling. When people spend less money, these businesses make less money.

But there are hopeful signs too. Something called the "consumer sentiment index" has been going up for 2 months in a row. This means more regular people think the economy will get better in the future. The new government reduced political uncertainty, and the government announced it would give out consumption vouchers, which seems to have helped people feel more positive.

Consumption vouchers are a policy where the government gives people coupons worth a certain amount of money to encourage spending. For example, if you get a 100,000 won voucher, you can use that money to eat at restaurants or shop at local stores. The idea is this increases spending, which helps stores make more money, and eventually helps the whole economy get better.

Right now, the economy's basic strength is weak, but people's feelings are slowly getting better. If government policy comes at the right time, it could help economic recovery.

2️⃣ Economic Terms

📕 Economic Downward Pressure

Economic downward pressure means forces that push the economy toward getting worse.

• Things like lack of demand, reduced investment, and decreased consumption work together to slow down the economy.
• Unlike temporary economic changes, this has structural and lasting characteristics.
• The government evaluates the strength and duration of this pressure in monthly economic reports.

📕 Consumer Sentiment Index

Consumer sentiment index shows how regular consumers evaluate current and future economic situations.

• The Bank of Korea conducts monthly surveys of 2,500 households and releases this data.
• 100 is the baseline - above 100 means optimistic feelings, below 100 means pessimistic feelings.
• Consumer feelings greatly affect actual spending behavior, so this is an important indicator for economic forecasts.

📕 Consumption Vouchers

Consumption vouchers are spending support money the government gives to citizens to boost the economy.

• They limit where you can use them to specific regions or types of businesses to increase policy effectiveness.
• They create more spending than giving cash directly and help activate local economies.
• They have temporary economic boosting effects but are separate from fundamental economic structural improvements.

📕 Domestic Demand

Domestic demand refers to all consumption and investment demand that happens within the country.

• It consists of household consumption, business investment, and government spending, showing the basic strength of the domestic economy.
• Strong domestic demand can act as a buffer against external economic shocks.
• Korea has high export dependence, so strengthening domestic demand is an important policy goal.

3️⃣ Analysis and Economic Outlook

✅ Structural Causes and Continuing Factors of Economic Downward Pressure

• Let's analyze the root causes of economic downward pressure that has continued for 7 months and future outlook.

  • First, the manufacturing industry's structural adjustment period is a major cause of economic downward pressure. The decrease in car and machinery shipments is not just a temporary phenomenon. As overall manufacturing undergoes structural changes like global supply chain reorganization, electric vehicle transition, and digital transformation, demand for existing production methods and products is decreasing. Especially, traditional car parts companies need to develop new technologies and products suitable for the electric vehicle era. Temporary production decreases and investment shrinkage during this transition process are unavoidable. However, completing this adjustment process is expected to take considerable time.

  • Second, service industry struggles directly reflect domestic demand shrinkage. Production decreases in logistics and retail show consumers' weakened purchasing power and changing consumption patterns. High interest rates increasing household debt burden, rising prices reducing real income, and employment uncertainty work together to shrink consumer sentiment. People especially tend to reduce spending on non-essential goods, dining out, and leisure activities. The growth of online shopping is also adding to traditional offline retailers' difficulties. This consumption shrinkage leads to job reductions, creating a vicious cycle that again reduces spending power.

  • Third, external uncertainties are suppressing companies' investment desire. America's protectionist trade policies, China's economic slowdown, and global supply chain instability are negatively affecting export companies' investment plans. Companies tend to increase cash reserves and delay investments to prepare for an uncertain future. Especially, manufacturing facility investment has decreased significantly, weakening the driving force for economic recovery. In this situation, government policy intervention becomes more important, but questions about fiscal capacity limits and policy effectiveness are also being raised.

• The continuation of economic downward pressure shows characteristics of a structural transition period beyond simple economic cyclical phenomena, requiring both short-term stimulus measures and medium to long-term structural reforms.

✅ Background and Sustainability of Consumer Sentiment Improvement

• Let's look at the meaning of the consumer sentiment index that has risen for 2 consecutive months and future outlook.

  • First, resolving political uncertainty is the main background for consumer sentiment improvement. With the new government's launch, political stability has increased, somewhat resolving consumers' anxiety about the future. During periods of political chaos, consumers tend to reduce spending and increase savings, but this conservative behavior is easing as a stable political environment is created. Expectations for the new government's economic policies are also contributing to consumer sentiment improvement. However, psychological improvement due to political factors may be difficult to sustain without support from actual economic indicators.

  • Second, announcements of the second supplementary budget and consumption voucher distribution raised psychological expectations. The government's announcement that it would distribute consumption vouchers through the supplementary budget positively affected consumers' expectant psychology. Although they haven't been actually distributed yet, expectations that disposable income will increase in the near future appeared as rising psychological indices. Also, confirmation of the government's active economic stimulus will increased trust in economic policy. However, for these expectations to lead to actual policy effects, they must be executed effectively at the right time.

  • Third, price stabilization and expectations of interest rate cuts contributed to improved consumption conditions. As recent consumer price inflation rates stabilized in the late 1% range, concerns about real purchasing power decreased. Also, as the possibility of Bank of Korea interest rate cuts increased, expectations arose for reduced loan interest burden. These factors worked together to somewhat reduce consumers' psychological burden. However, there may be a time lag before consumer sentiment improvement leads to actual consumption increases, and employment stability and income growth must support continued improvement.

• Consumer sentiment improvement is a positive signal, but for this to lead to sustained economic recovery, improvement in real economic indicators and realization of policy effects are needed.

✅ Effects and Limitations of Consumption Voucher Policy

• Let's comprehensively evaluate the impact consumption voucher distribution through the second supplementary budget will have on domestic recovery.

  • First, consumption vouchers' short-term consumption boosting effects are expected to be considerable. During COVID-19, disaster relief funds showed immediate effects on consumption increases. Especially, giving vouchers instead of cash prevents money from going to savings and makes it more likely to lead to actual consumption. This is expected to directly help local businesses like restaurants, retail stores, and service businesses. There are also psychological effects - voucher distribution can revive overall consumption sentiment. However, for these effects to appear, diversity and accessibility of voucher usage locations must be guaranteed.

  • Second, local economic activation and self-employed business support effects are expected to be large. Consumption vouchers usually restrict usage to local businesses and small business establishments rather than large discount stores or online malls. This directly helps struggling local commercial districts and self-employed people. Especially, it can provide relief to restaurants, beauty salons, and retail stores that have been struggling since COVID-19. It can also promote consumption circulation within regions, bringing ripple effects to overall local economies. However, selecting usage locations and promotion are important to maximize effects.

  • Third, from a long-term perspective, there are structural limitations requiring sustained measures. Consumption vouchers have temporary consumption increase effects, but this is separate from fundamental income increases or economic structural improvements. When voucher usage ends, consumption is likely to return to original levels. Therefore, while consumption vouchers can play a role as a primer for economic recovery, more fundamental measures like employment stability, income increases, and social security expansion must be pursued together for sustained domestic expansion. Fiscal burden is also a factor to consider, as excessive dependence can harm fiscal soundness.

• Consumption voucher policy is an effective short-term economic stimulus tool, but medium to long-term income-led growth and structural competitiveness strengthening are more important.

4️⃣ Conclusion

The economic downward pressure continuing for 7 months shows that Korea's economy faces a structural transition period beyond simple economic cyclical recession. As manufacturing's digital transformation and service industry's domestic demand shrinkage occur together, limitations of traditional growth models are being revealed.

However, the consumer sentiment index's rise for two consecutive months is a hopeful signal. Political stability and the government's active economic stimulus policy will are positively affecting people's psychology. Especially, consumption voucher distribution through the second supplementary budget is evaluated as timely policy that can breathe life into stagnant domestic demand.

Several factors are important for consumption voucher policy success. First, appropriate scale and timing must be guaranteed, and usage should be limited to local businesses and small enterprises to maximize policy effects. Also, follow-up measures should be prepared so this leads to sustained consumption increases beyond simple one-time support.

Most importantly, we must recognize that consumption vouchers are not a fundamental solution. For true domestic recovery, structural improvements like employment stability, income increases, and social security expansion must be pursued together. Also, it's important to secure new growth engines through supporting manufacturing's digital transformation and improving service industry productivity.

Ultimately, to overcome current economic downward pressure, a balanced policy combination pursuing both short-term stimulus measures and medium to long-term structural reforms is needed. While consumption vouchers play a primer role for domestic recovery, efforts to build sustainable growth foundations must be made together.