The accommodation and food service sector — a bellwether of domestic consumption — is mired in an unprecedented prolonged slump since records began. A shuttered restaurant in Myeong-dong, Jung-gu, Seoul. [Yonhap]
The accommodation and food service sector — a bellwether of domestic consumption — is mired in an unprecedented prolonged slump since records began. A shuttered restaurant in Myeong-dong, Jung-gu, Seoul. [Yonhap]

South Korea's service sector output has risen more than 4 percent this year, sustaining a recovery trend, but the accommodation and food service industry — a key barometer of domestic demand — has yet to fully shake off its prolonged slump.

Despite a rise in foreign tourist arrivals and government efforts to stimulate spending, persistently high prices and elevated interest rates have made a recovery in consumer sentiment the single biggest variable for the second half of the year.

Data from the Ministry of Statistics' national statistics portal KOSIS and the industrial activity survey released Sunday show that overall output across all industries rose 2.7 percent on average from January through May compared with the same period last year. Service sector output grew 4.2 percent over that span, while accommodation and food service managed only 0.9 percent growth.

Within the sector, accommodation output rose 2.7 percent, while restaurants and drinking establishments grew just 0.6 percent — a stark contrast to the strong gains posted by high-value-added service industries such as finance and insurance, which expanded 8.7 percent, and professional, scientific and technology services, which grew 9.5 percent.

Still, the accommodation and food service sector is gradually emerging from a deeper slump. After contracting on an annual basis in both 2024 (minus 1.9 percent) and 2025 (minus 2.5 percent), output has returned to growth this year.

On a quarterly basis, output fell for nine consecutive quarters from the second quarter of 2023 through the second quarter of 2025 before rebounding 1.4 percent in the third quarter of 2025. It was flat in the fourth quarter of 2025 and grew 0.3 percent in the first quarter of this year. The recovery continued in April and May, with output up 1.2 percent and 2.2 percent, respectively.

The government expects the sector to benefit from rising foreign tourist numbers and consumer-support measures, including spending vouchers for everyday expenses, high fuel-price subsidies and a lodging discount festival.

Structural headwinds remain, however. Declining population and a shift away from group dining culture are reducing food consumption in ways that are difficult to reverse.

The more immediate obstacle to a consumption recovery is what analysts are calling the "triple high" — a high exchange rate, high inflation and high interest rates.

With the won-dollar rate holding above 1,500 won, rising import prices are likely to feed through to consumer prices with a lag, and weather-driven swings in agricultural prices this summer could add further pressure to dining costs. The closure of Homeplus stores is also cited as a factor that could dampen local commercial activity and weigh on domestic consumer sentiment in some areas.

The financial burden on self-employed business owners is also mounting. Outstanding loans to the self-employed from financial institutions approached 1,100 trillion won ($708 billion) at the end of the first quarter, a record high, while overdue debt reached 22.3 trillion won, also an all-time high. The delinquency rate climbed to around 2 percent, the highest level in roughly a decade.

National tax statistics show that last year saw a record number of closures among businesses that had operated for five or more years, and the most restaurant closures on record among establishments open for 20 years or more. The Bank of Korea, in its latest financial stability report, identified self-employed loans as a major risk exposure for the financial system, warning that financial stability risks are concentrated among small-scale and in-person service businesses, real estate operators and older self-employed individuals.

Experts said that if financial conditions deteriorate — including through a benchmark interest rate increase — the repayment burden and default risk facing self-employed borrowers could worsen significantly. They called for preemptive management of distress in vulnerable sectors alongside broader policy measures to address the structural fragility of the self-employed economy.


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