The South Korean government is internally reviewing a plan to designate May 4 as a temporary public holiday. The move aims to boost consumption in services sectors such as tourism as domestic demand contracts under the weight of high oil prices.
According to government sources on Tuesday, economic ministries are discussing a plan to designate May 4 as a temporary holiday, creating a five-day golden week from May 1 (Workers' Day) through May 5 (Children's Day). "It is true that this is a period where the effect would be significant in terms of timing," an economic ministry official said. "We can expect a positive effect on the domestic demand side."
Consumer sentiment has been freezing rapidly, with stagflation concerns emerging in the market following the U.S.-Iran war. The won-dollar exchange rate remains elevated while international oil prices have surged, prompting consumers to tighten their wallets. Such a contraction in spending is likely to drag down economic growth. The Organisation for Economic Co-operation and Development (OECD) cut its growth forecast for South Korea this year from 2.1 percent to 1.7 percent. South Korea's heavy reliance on imported energy is expected to amplify the growth shock, analysts noted.
Unlike past temporary holidays, this time there is a strong likelihood that consumption will be concentrated domestically, which is an advantage from an economic stimulus perspective. Longer holidays typically increase overseas travel demand, diluting the domestic spending effect. However, high oil prices and rising airfares are expected to constrain overseas travel this time, keeping consumer spending within the country.
"Overseas travel conditions are more constrained than in the past due to rising airfares and geopolitical instability," said Cho Young-mu, head of NH Financial Research Institute. "There is a higher chance that spending will be directed toward domestic consumption."
Past precedents also appear to have influenced the current discussion. The government has previously designated weekdays sandwiched between holidays as temporary public holidays to stimulate consumption, considering both domestic demand and public sentiment. Tourism and retail spending showed repeated short-term increases in those instances.
Energy supply and demand factors are also at play. As the need for electricity demand management grows amid the recent high oil price environment, conservation measures centered on the public sector have been strengthened. An additional day off could help reduce industrial and commercial electricity usage, easing peak load pressure, according to analysts.
The holiday is also expected to create synergy with high oil price relief funds already disbursed. The government has finalized a supplementary budget that includes livelihood support payments and various consumption stimulus measures to cope with high oil prices.
"With domestic demand yet to show a clear recovery trend, designating a temporary holiday could help ease the contraction in consumer sentiment," said Joo Won, head of economic research at Hyundai Research Institute. "Since the supplementary budget is also premised on domestic demand recovery, this would be meaningful as a complementary policy measure."
