Propensity to consume hit 13-year low in 2017

Korea’s propensity to consume fell to a 13-year low in 2017 as households tightened their purse strings amid a sluggish economy, central bank data showed Thursday.

The average consumption propensity, or the ratio of total private and government spending to disposable income, stood at 78.9 percent, down 0.2 percentage points from the previous year and the lowest since the 78.1 percent recorded in 2004, according to the data from the Bank of Korea.

The country’s disposable income grew 5 percent on-year to 1,390.8 trillion won ($1.25 trillion) last year, with total consumption rising 4.7 percent to 1,097.6 trillion won.

The average consumption propensity, a key measure of household spending, entered a downturn after reaching 81.6 percent in 2012.

The 2017 drop was attributed mainly to chronically anemic household consumption, which accounts for more than 90 percent of private spending.

Korea’s private consumption expanded 4.2 percent in 2017 from a year earlier, with government spending climbing 6.5 percent.

Analysts said Korea’s aging population, coupled with weak domestic demand and employment, cast doubt on households’ future income, forcing them to save money instead of spending. The drop in the average consumption propensity has sparked worries that consumer spending may lose further ground down the road, becoming a drag on Asia’s fourth-largest economy.

“Consumption is weakening amid consumer perception that income isn’t growing faster than expected and economic conditions may become unstable,” said Joo Won, a senior researcher at the Hyundai Research Institute. “The government should take measures to boost private employment and cut taxes to galvanize consumer spending.”

Yonhap