Published : 2013-02-26 20:19
Updated : 2013-02-26 20:19
Despite continuous increases in their income, Korean consumers have become more cautious in opening their purses. According to figures released by the national statistics office last week, the average monthly household income grew 6.1 percent from a year earlier to 4.07 million won ($3,740) last year. Their disposable income, which excludes payments on taxes, pensions and insurance, recorded a higher year-on-year increase rate of 6.4 percent, amounting to 3.31 million won on average per month. Both rates were the highest in a decade since 2003, when the statistics agency began compiling related data on the national level.
Household spending also rose, but at a far slower pace. The average monthly consumption expenditure increased 2.7 percent from a year earlier to 2.45 million won last year. It was the lowest figure in the past decade except for 2009 when monthly consumption spending grew by a meager 1.7 percent in the aftermath of the global financial crisis.
The consumption growth rate has decelerated from 6.4 percent in 2010, while disposable income has grown at increasingly high rates in recent years.
A large part of last year’s rise in household income amid sluggish economic growth came from increased employment. Though most of the 437,000 jobs added last year were based on temporary or irregular contracts, the growing rate of employment meant more household income.
But consumer sentiment remained frozen, with department stores seeing their sales decline for the first time in eight years, suggesting affluent people as well as low-income families began tightening their purse strings. The sluggish household consumption reflects Korean consumers’ worries over future uncertainties. Slowing economic growth and declining asset prices have deepened their concerns their wealth is shrinking at a time when they have to prepare for prolonged post-retirement life.
The burden of debt repayment is also weighing on consumer sentiment. According to data released by Statistics Korea on Sunday, households’ interest payments hit a record high last year as their debts rose to the highest level in a decade.
Under these circumstances, it may be difficult to find ways to boost household spending. But if left unaddressed, the continuous decline in family consumption would push the economy further into a vicious circle in which sluggish consumption leads to a reduction in corporate sales and investment, which in turn decreases job opportunities.
Consumer sentiment is one of the key indicators showing the public’s confidence in the government’s economic policy direction. In this sense, President Park Geun-hye’s administration needs to demonstrate its firm will to reinvigorate the economy.
A variety of measures should be worked out and implemented to promote household consumption. It is necessary to speed up the work to draw up a supplementary budget designed to stimulate the economy and reschedule the repayment of household debts. Lawmakers should be quick to pass bills on extending tax credits on house purchases. Policymakers need to look into the possible effects of measures to encourage early inheritance on consumption by younger people.
The most effective way to promote household spending over the long term is to create more jobs for skilled workers, on which the success of President Park’s efforts toward economic revival will eventually hinge.