Concerns brew over S. Korea’s consumption slowdown

February 27, 2014 Leave a comment

Concerns brew over S. Korea’s consumption slowdown

Chun Beom-joo

2014.02.21 17:07:56

South Korea’s households drastically cut back on spending on a yearly basis last year in comparison to inflation. This is a serious problem, as household consumption is the backbone of the national economic growth, translating into corporate profits and the government tax revenue. More worrisome is that some experts claim the decline in household expenditure might spell the start of structural changes in the long run. 
Korean households’ real income rose 0.8 percent in 2013, far slower than 3.8 percent of 2012. The real consumption expenditure climbed 1.9 percent year-on-year (yoy) in the fourth quarter of last year, shifting into the positive territory, and on a yearly basis narrowed its decrease to negative 0.4 percent.
The household income growth has decelerated and reduced consumption expenditure last year, while in a quarterly comparison spending growth is picking up pace. Based on this trend, private consumption would improve this year, according to the outlook presented by the Ministry of Strategy and Finance and Statistics Korea.
But a strong counter-argument says the average propensity to consume (APC) continues to go down, so the diminished private consumption should be seen as a structural problem. Indeed, the APC fell to 70.0 percent in the second half of last year.
“Baby boomers living with shaky post-retirement and job insecurity zipped up their wallets, and as a result the propensity to consume could stay low over a long haul,” said Lee Joon-hyup, researcher at Hyundai Research Institute.
Statistics Korea largely attributed the decline in spending of last year to the government’s welfare policy including childcare cost support.

Filed under Macro Trends

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