Chip boom fails to lift spending as private consumption falls
A traditional market in Seoul is nearly empty, Tuesday. Yonhap
Korea's economy is growing on the back of a semiconductor export boom, but consumers aren't feeling the benefits.
Private consumption fell 0.2 percent in the third quarter from the previous quarter, marking its first decline since the second quarter of 2023, according to preliminary data on third quarter economic growth from the Bank of Korea (BOK), Tuesday.
Private spending growth had already slowed from 0.6 percent in the first quarter to 0.4 percent in the second before turning negative in the third.
Spending declined for both goods, including cars and home appliances, and services, such as financial and dining services.
The decline came even as the economy expanded 1 percent in the third quarter from the previous quarter, exceeding the central bank's forecast of 0.3 percent.
Weak private spending stood in contrast to stronger headline growth driven by robust semiconductor exports. While the export boom has lifted overall economic growth, its benefits have yet to result in a stronger recovery in domestic consumption.
The BOK attributed the decline in private consumption partly to a drop in financial services spending as stock trading volumes fell due to the sluggish stock market. It also pointed to delays in vehicle deliveries caused by a full-scale strike by Hyundai Motor workers in August, the first in a decade.
"Private consumption has not shown a particularly strong recovery so far, partly because of structural factors such as high household debt and population aging. We expect private consumption to gradually recover in the first quarter of next year," said Lee Dong-won, director general of the BOK's economic statistics department.
A sustained recovery in consumer spending remains uncertain amid inflation stemming from the prolonged conflict in the Middle East and volatility in the stock market.
The BOK's latest consumer survey also pointed to cooling consumer sentiment.
According to the central bank data released Tuesday, the composite consumer sentiment index fell 1.2 points from the previous month to 105.4 in October, reversing a one-month rebound.
The index, which combines six indicators of consumers' perceptions of current economic conditions and their outlook, is set at 100 for its baseline. A reading above 100 indicates that optimists outnumber pessimists.
Consumers also grew more pessimistic about current and future economic conditions. The current economic conditions index fell 1 point from the previous month to 82, while the economic outlook index dropped 2 points to 88.