Aging population to cut Korea's consumption growth by 1% annually: BOK

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Korea’s consumption growth is projected to decline by 1.0 percentage point annually over the next five years due to rapid population aging and falling birthrates, the Bank of Korea (BOK) said Sunday.

The projected slowdown is attributed to reduced spending among retirees, who tend to have limited income and lower levels of social activity, as well as a growing tendency to save more in anticipation of longer life expectancy.

In a report released by the central bank, the trend growth rate of private consumption between 2013 and 2024 was found to be 1.6 percentage points lower than the rate recorded from 2001 to 2012. Of this decline, about 0.8 percentage points per year were attributed to demographic changes.

"Given the projected demographic trends, these effects are expected to intensify further," the report said, adding that annual consumption growth could fall by as much as 1.0 percentage point between 2025 and 2030.

A key factor is the shrinking share of the working-age population in their 30s to 50s — an age group that typically supports household income and consumption. This demographic shift is reducing growth potential and dampening income expectations for many households.

At the same time, longer life expectancy is prompting increased precautionary savings for retirement. Older adults also have a lower propensity to consume due to declining income and the fact that a larger share of their wealth is tied up in illiquid assets such as real estate.

In particular, older adults tend to cut back on discretionary expenditures such as durable goods, cultural activities and dining out, while spending more on health care. Meanwhile, the country's declining birthrate has led to reduced spending on child-related needs such as education.

As a result, the average propensity to consume dropped by 6.5 percentage points — from 76.5 percent in 2010–2012 to 70 percent in 2022–2024.

The report also highlighted the rise in single-person households as a contributing factor to the consumption slowdown. These households are often made up of low-income earners or elderly individuals and typically face greater employment instability, making them more susceptible to external economic shocks.

For instance, their average propensity to consume declined from 78 percent in 2019 to 73 percent in 2024, impacted by the COVID-19 pandemic.

Government policy is also playing a role. The expansion of public spending on health care and education has, in part, replaced private household expenditures in these areas, further dampening consumption growth.

The BOK called for long-term policy reforms to address these structural challenges.

One recommendation includes supporting second-generation baby boomers in maintaining stable, salaried employment beyond retirement age, rather than transitioning prematurely into self-employment.

Korea has one of the highest self-employment rates among OECD member countries, with the self-employed making up a significant 23.2 percent of the nation's labor force.

"By reducing uncertainty about future income, this could help alleviate the decline in consumption propensity driven by anxiety over retirement," the report said.