South Korea central bank says private consumption to weaken, but not steeply

SOUTH Korea’s consumer spending is set to weaken, though only modestly, amid high inflation and a slowdown in employment, the country’s central bank said in a research note published on Thursday.

“Recovery in private consumption is expected to weaken going forward due to slower growth in real purchasing power and a rise in interest rates,” the Bank of Korea (BOK) said.

“But, the possibility is low for consumption to shrink sharply, buffered by accumulated household savings and ‘pent-up’effects,” it added.

The BOK estimates a 50-basis-point rise in its policy rate would drag down private consumption by a maximum of 0.06 percentage points, while widening the deficit in total household income by a maximum 3.2 trillion won (S$3.18 billion), according to the report. 

It expected a recovery in services spending will gradually soften, while spending in goods remains weak, although overseas expenditure is likely to see a huge increase with countries opening up borders.

“Still, it needs to be cautioned that private consumption may face heavier downward pressure, depending on speed and degree of the rise in interest rates and global economic slowdown.” REUTERS