Indicators for household economic activity remain in the doldrums, casting a dark cloud over the prospect of an earlier economic recovery.
A report released by Statistics Korea last week showed that household income remained flat in real terms in the second quarter of this year from a year earlier.
In contrast, the average propensity to consume, or the ratio of consumption to disposable income, fell to 70.9 percent in the April-June quarter, the lowest since 2003 when the statistics office began compiling the data. The corresponding figure was 72.3 percent in the fourth quarter of 2015 and 72.1 percent in the first quarter of this year.
The income gap between the rich and the poor is also widening. In the second quarter of this year, the average income in the top 20 percent income bracket was 4.51 times greater than that in the bottom 20 percent group, and this represents an increase from the 4.19 times difference a year earlier.
It’s not difficult to reason why people don’t open their purse strings even if they have money.
First of all, consumers tend to be thrifty in their efforts to brace for the uncertain future arising from job losses or retirement. With income stagnating amid the protracted economic downturn, households have been cutting back on spending on food, clothes and other daily necessities.
People’s reluctance to consume is bolstered by statistics about the nation’s savings rate. According to a report released by the OECD, Korea’s household savings rate is expected to reach 8.66 percent this year, more than double from 3.9 percent in 2012. That would put Korea at the fifth highest in the OECD in savings.
All this raises fears about a vicious circle of sluggish consumption, production slowdown, cutbacks in employment and income stagnation in what appears to be the repetition of Japan’s two lost decades.
The deepening consumption slump might cause doom and gloom at a time when exports, the country’s traditional economic locomotive, are mired in a structural gridlock amid the prolonged global economic downturn. It’s long past time for the government to act resolutely to help replenish household consumption capabilities, which would especially call for measures to expand disposable income of low-income families.
More fundamentally, it will be necessary to create more jobs by developing service industries such as tourism and medicine. The problem, however, is that there has been much talk about this but little has been done so far. What is needed most then is to boldly dismantle a complicated web of administrative red tape.