Yoon Ja-young is in charge of articles translated by a generative AI system and edited by The Korea Times. She is interested in improving the newspaper through AI.
Savings rate rising amid sluggish consumption
By Yoon Ja-young
By Yoon Ja-young
The country’s savings rate has risen to the highest level in 17 years as more people refrain from spending amid low economic growth.
According to data from the government and the central bank, the country’s total savings rate was 36.5 percent in the first quarter of this year, rising from 35 percent one year ago. It is the highest figure since the third quarter of 1998 when it stood at 37.2 percent.
By sector, the rise is mostly due to increasing savings by households. The savings rate of households rose for three consecutive years, recording 7.1 percent last year. The saving rate of the government, meanwhile, has been sliding for three years in a row, recording 6.9 percent last year.
The rising savings rate, however, is not all good news as it reflects contracting consumption. Experts say that households are cutting consumption due to the burden of household debt and uncertainties over life after retirement.
The country’s average propensity to consume has been falling during the past few years, to 72.9 percent last year from 76.7 percent in 2011.
Lee Geun-tae, an economist at LG Economic Research Institute, said the contraction in demand will hamper the economy.
“Household’s average propensity to consume has been falling steeply since 2010. After the economic crisis, households are increasing savings and cutting consumption due to concerns over the future. However, that is leading to a contraction in demand, eventually hurting growth as well as income,” Lee said.
The economist added that the problem is likely to worsen.
“With increasing life expectancy and disappearing expectations that real estate prices will continue to rise, households are in need of more assets to prepare for life after retirement. As more people take low economic growth for granted, the low propensity to consume is only likely to continue.”
He added that the falling propensity to consume worsened the economic recession in Japan.
Lee Yong-hwa, a senior researcher at Hyundai Research Institute, said sluggish private consumption is hindering the country from reaching $40,000 per capita income.
He said the government should prepare diverse measures to increase household income, such as easing corporate regulations and nurturing the tourism industry.
He also advised the government to suppress household debt so it doesn’t hinder consumption; and increase jobs for the elderly.
“There should be more rental houses and loans for low-income households so the housing problem does not damage consumption. The government should try to expand the middle class, for recovery of private consumption and promotion of the domestic economy,” he added.