Soaring overseas spending hits Moon's 'income-led growth'

By Yoon Ja-young

With more than 1 million Koreans enjoying overseas travel during the long Chuseok holiday break, the Moon Jae-in administration’s plan to pull up economic growth by increasing household income is facing obstacles as much of the money is being spent overseas.

According to Incheon International Airport, 2.06 million people used the airport during the 10-day break between Sept. 29 and Oct. 9, which is up 16 percent from Chuseok last year. While the government designated Oct. 2 as a temporary holiday to bridge the weekend with Chuseok, hoping the long holiday would lead to more consumption and boost the economy, the positive effect is not likely to be huge since many chose to go overseas.

Statistics show the surging number of overseas trips and spending is an irreversible trend, which contrasts with sluggish domestic consumption. According to the Bank of Korea, households spent 30 trillion won on overseas trips last year. The country’s monthly travel account sustained a $1.79 billion deficit in July, the biggest ever, but the deficit for October is expected to far surpass it. The annual travel deficit is likely to surpass $15 billion this year.

While overseas consumption increased 14.5 percent in the first quarter and 11.8 percent in the second quarter this year, retail sales inched up only 1.9 percent in the first and 1.7 percent in the second quarter.

As a result, overseas consumption has come to take a considerable part of household spending. The ratio of overseas consumption in total spending has been hovering between 3.9 and 4.7 percent since the third quarter of 2015 when it first surpassed 4 percent.

The new spending pattern is threatening the administration’s “income-led economic growth plan,” where the increase in household income will lead to more consumption, thereby increasing production and employment, pulling up consumption again in a virtuous circle.

Some even show concern that those who traveled overseas may cut spending when they come back. The economic outlook index by wholesalers and retailers for October dipped 17 percentage points.

While economic development makes the increase in overseas spending inevitable, experts advise the government set up infrastructure to meet the demand for domestic leisure.

“Statistics show households mostly increase spending in leisure and culture services when their income grows. While group travel and outdoor activities such as sports are the sectors where people can increase spending, Korea has a low satisfaction rate in these sectors due to the lack of infrastructure,” said Lee Geun-tae, an economist at LG Economic Research Institute.

“As people turn their eyes to overseas trips and overseas sporting activities, it may fail to form a virtuous circle of growth as it doesn’t contribute to domestic growth.”

The government should focus on nurturing leisure and culture or medical and healthcare industries to encourage more domestic consumption, he added.