Consumer spending subject to panic, says BOK

Scared about not having enough money for retirement, Koreans have been tightening their belts since the early 2000s and really cut back after economic crises, including the credit card defaults and the global economic meltdown.

A study released by the Bank of Korea yesterday showed that the growth of consumer spending shrank noticeably every time an economic crisis occurred.

Consumers tightened their purse strings in 2004 after the country experienced mass credit card defaults that led to the bankruptcy of LG Card, which was later bought by Shinhan Financial Group.

Consumers once again cut back on purchases after the country was threatened by the unprecedented global financial crisis in late 2008.

On the other hand, consumer spending last year was one of the key factors that helped the Korean economy reach its growth target rate of 2.8 percent.

After the government front-loaded its budget for the year in the first half and reduced spending in the second, consumer spending in the second half grew at a faster rate than in the first. While consumer spending grew 1.6 percent in the first half of 2013 compared to the same period in 2012, it expanded 2.1 percent for the year on the whole.

The central bank expects consumer spending to further expand in the first half of this year to 3.4 percent year-on-year and maintain the same growth rate in the later half.

Although there is some optimism that relatively robust consumer spending could boost the domestic market to reach this year’s growth target of nearly 4 percent by the end of the year, the report clearly showed uncertainties that are holding back consumers from spending more.

Those fears inhibit immediate consumer spending and affect production and job opportunities as well.

“Consumers since the 2000s have been cutting down on their immediate purchases as their futures became uncertain,” said Bae Byeong-ho, who wrote the BOK report. “Fears over immediate spending have been growing since, and this resulted in consumers holding back on immediate purchases [in recent years].”

The aging society and job insecurity are major factors that forced consumers to cut back on spending.

The BOK official said in order to minimize the negative influence of such spending patterns, it is important to improve consumers’ expectations about the economy and their futures.

“That could be achieved through policies such as adopting a stronger social safety net while improving job security,” Bae said.

BY LEE HO-JEONG [ojlee82@joongang.co.kr]