Service Industry: As Cold As It Gets

Ju, 49 years old, has been having a hard time falling asleep recently. The owner of five private after-school institutes in areas like Gangnam, Seoul and Suwon, Gyeonggi Province, has witnessed the number of students nosedive even during the peak summer season when students are out of school.

“The number of students we have is only 70 percent of the level during the same period last year. I have been trying to make up for the deficits of four institutes with the income from one institute in Gangnam, where we have barely managed to stay in the black,” sighed Ju.

The service industry is currently in an extremely tough condition with retail production, a major business for domestic demand, dropping for 18 consecutive months and the revenue of the education sector falling at record-high pace.

According to “The Service Industry Activity Index in July 2004” released by the National Statistical Office on September 6, the total production of the service industry declined by 1.2 percent year-on-year, recording the biggest drop since the beginning of counting in 2000.

As for retail trade, which is a major business for domestic demand, the growth rate of retailers with no offline stores such as home shopping fell 8.8 percent while food and beverage dropped 7.6 percent. Retailers including department stores, discount stores, and supermarkets also showed a negative growth of 1.8 percent. Consequently, retail trade contracted by 0.7 percent, which has faced negative growth for 18 consecutive months since February 2003 when the sector contracted by 6.4 percent.

Wholesale trade grew by 0.4 percent year-on-year. However, the pace of growth slowed significantly compared with 1.2 percent in June. Automobile sales and fuel retail sales also dropped by 2.3 percent.

Due to the implementation of a stringent restriction policy on real estate speculation this year and dampened business investment, real estate & rental/leasing recorded a negative growth of 11.5 percent, declining for seven months in a row.

The education service sector, which usually enjoys a peak season in July, contracted by 9.6 percent year-on-year and recorded the highest drop in growth since the beginning of the count in 2000.

The finance and insurance sector turned negative in three months, contracting 2.4 percent due to weak performance of credit card companies and a sluggish stock market. Despite that July is a summer vacation period, growth rate of the hotel and restaurant sector fell by a year-on-year 0.4 percent.

Transportation, telecommunication, and business service sectors continued to grow by 4.3 percent, 2.2 percent, and 2.7 percent respectively, but the growth rates were relatively lower than the figures of June 2004.

“There have been concerns that the recovery of domestic demand and employment may slow down because of dampened service industry. The growth rate is very likely to be lower in the second half of 2004 than in the first half as export growth is gradually slowing,” said Oh Moon-suk, deputy general director of LG Economic Research Institute.

Yong Park parky@donga.com