Domestic demand slumps due to high interest rates: KDI

The Korea Development Institute (KDI), South Korea’s leading think tank, has raised alarm bells about “sluggish domestic demand” in the country for a 10th consecutive month and identified resolving the shock of high interest rates as the country’s top priority.

In contrast to the government’s view that there are “signs of recovery” in domestic demand, KDI is continuously advocating for the need to lower interest rates to revive this demand.

“Despite strong export growth, the Korean economy is facing a constrained economic improvement as domestic demand recovery is delayed due to high interest rates,” KDI said in the September issue of its economic trends report published on Monday.

The Bank of Korea has kept its benchmark interest rate at 3.50 percent since February 2023.

KDI pointed out that “while the manufacturing sector continues to recover, domestic demand remains weak, with retail sales and construction investment still sluggish despite strong exports.”

It also highlighted that service consumption has been impacted by the large-scale non-settlement incidents involving online shopping malls TMON and WeMakePrice.

The year-on-year growth in online shopping service transactions was 10.9 percent in June 2024, but shrank to 1.7 percent a month later.