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| A man walks past air conditioners displayed at an electronics shop in downtown Seoul, June 18. Yonhap |
By Yi Whan-woo
Private spending appears to be slowing despite the government spending hundreds of billions of won to encourage consumers to go out and spend more in the post-pandemic era.
The dim outlook regarding consumer expenditure is adding to Korea's economic woes, as private spending is a twin growth engine of exports and previously, was offsetting the adverse effects of sluggish exports.
According to Statistics Korea this week, the retail sales index, which measures the change in the total value of sales at the retail level and is the foremost indicator of consumer spending, slid 2.3 percent from a month earlier to 105.2 in April.
The month-on-month decline marked the steepest fall since November 2022 when it shrank by 2.3 percent.
The downward trajectory of the retail sales index comes after the government, in late March, announced plans to spend 60 billion won ($46.3 million), including 30,000 won for discount accommodation coupons for up to 1 million people, to boost domestic travel and spur consumer spending.
The government is expected to announce follow-up measures in its policy direction for the second half of 2023.
Separate data from the Credit Finance Association showed that the increase in credit card spending compared to a year earlier has been slowing in recent months ― up 9 percent in March, to 5.6 percent in April and 3.9 percent in May.
In particular, the year-on-year increase in May spending was the lowest since January 2021 when the pandemic was at its height.
In a joint study, the Korea Culture and Tourism Institute and Shinhan Card estimated that weekly credit card spending amounted to 10.42 trillion won between May 29 and June 4, down 13.9 percent from a week earlier.
Industry sources also reported that the year-on-year sales at major department stores nationwide inched down 0.8 percent in April and another 0.2 percent in May.
"All this data shows worrisome signs for the country's path to recovery, considering private spending has been sustaining Korea's slowing economy," said Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI).
He referred to the country's quarterly gross domestic product (GDP) growing 0.3 percent in the first three months of 2023 after shrinking 0.4 percent in the previous quarter, as consumer expenditure advanced 0.5 percent.
Private spending was the biggest contributor to GDP, accounting for 0.3 percentage points of the growth and offsetting the adverse effects of net exports that pulled down growth by 0.1 percentage points.
"It appears private spending thereafter is being disrupted as costs of eating out and other outdoor activities are rising faster than consumers can bear," Lee said.
He also said a weak Japanese yen against the Korean won is another minus factor for the government's hopes for domestic travel. Koreans are flocking to Japan to tour the neighboring country at a much cheaper cost than usual.
Accordingly, Korea's travel balance was in the red in the first three months this year, with the quarterly deficit reaching $3.2 billion to mark its highest level since the third quarter of 2019.
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