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The government recently designated Armed Forces Day on Oct. 1 as a temporary holiday. As a result, employees can now enjoy a total of nine days off, from the weekend of Sept. 28 to Oct. 6, if they take three additional days of leave.
While the government cited the designation as a means to "increase public awareness of the importance of national security and honor the role of the military," market observers believe the actual goal is to boost struggling domestic demand. However, they are skeptical about whether the long holiday can genuinely meet expectations for stimulating domestic spending.
Contrary to growing exports, the retail sales index, a key measure of consumer activity, fell by 2.3 percent last month, marking 16 consecutive months of decline.
The downturn caused the number of closed businesses in Seoul during the second quarter of this year to reach 6,290, surpassing the 6,258 closures recorded in the first quarter of 2020, when the restaurant industry was severely impacted by COVID-19.
The anticipated economic effects of the temporary holiday is one of the few options left for the government to rely on, as it lacks the financial capacity to stimulate private consumption. The government has already front-loaded 357.5 trillion won ($266.8 billion) — 63.6 percent of the yearly budget — in the first half of this year. But this failed to yield significant results.
In its 2020 report, Hyundai Research Institute estimated that each additional national holiday would increase consumer spending by 2.1 trillion won and create a production-inducing effect of 4.2 trillion won.
A clearance sale notice is displayed at a store in Seoul, Sept. 1. Yonhap
"The designation of the temporary holiday is expected to boost leisure and tourism activities, particularly within the country, which will have a ripple effect on both the service and manufacturing industries," the institute wrote at the time.
However, the scheme is unlikely to be a game-changer for the recent recession. Market watchers believe that consumption can only recover if income conditions improve.
"There may be a temporary boost in consumption, but with high inflation and interest rates still in place, it seems insufficient to significantly reverse the ongoing weakness in domestic demand," Chon So-ra, an economics professor at Inha University, said.
According to Statistics Korea, the average monthly household income in the second quarter of 2024 increased by 3.5 percent compared to the previous year. But real income, adjusted for inflation, rose by only 0.8 percent.
The travel industry also reported that people are choosing international trips following the designation of the temporary holiday, contrary to expectations that domestic travel would increase and boost consumer spending. Very Good Tour, a leading travel agency, said Thursday that the number of outbound travelers between Oct. 1 and 4 this year reached 10,121, representing a 27 percent increase compared to the same period last year.
The government acknowledged that the growth in exports has been slower in stimulating domestic demand than anticipated. However, it remains optimistic about a future recovery.
"We anticipate that real incomes and wages will improve further in the second half of the year," Deputy Prime Minister and Finance Minister Choi Sang-mok said Sunday during an interview with local broadcaster KBS.
"We cautiously predict that the growth rate of domestic consumption will expand in the latter half of this year compared to the first half, and even more so next year."