BOK warns of U.S. private consumption risk

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BOK warns of U.S. private consumption risk

The Korean central bank underlined the potential risk looming over the private consumption trend in the United States, a factor that could in turn affect the Korean economy.

Private sector consumption, a mainstay of the U.S. economy, has driven economic growth in the past five years, but could face trouble sustaining the same level of expansion due to a multitude of uncertainties, according to a report released by the Bank of Korea (BOK) on Sunday.

“The strong performance of private consumption led the U.S. economic growth, being boosted by expansionary stimulus policies, improved household income and fiscal stability” the report said.

“The U.S. economy is expected to expand at a modest pace, but the risks facing private consumption should be closely watched to assess future fluctuations,” it said.

The country’s private consumption grew at an average rate of 3 percent between 2014 and 2018, significantly rebounding from the post-recession era of 2010 through 2013, according to the report.

The report pointed to weakening demand for work forces in some sectors and the protracted U.S.-China trade war as worrying signs for personal consumer expenditure.

“The U.S. job market will likely deteriorate since some sectors, including manufacturing, show signs of sluggish labor demand,” the report noted, “The purchasing power can be limited by the trade dispute between the United States and China, a potentially negative impact that a slowing real estate market will have on assets and weak consumer sentiment.”

The central bank researchers went on to suggest that Korea remain watchful of any sign of decline in private spending as its exports heavily rely on the U.S. market.

Korea should diversify the countries that it exports to in order to offset the effects of waning consumption in the world’s largest economy.

“Considering the heavy proportion the U.S. market takes up of Korean exports, it is important for the industry to respond with the efforts to enhance competitiveness in their production and enter new, emerging markets,” the report said.

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