August 24, 2016 13:08
Household spending at home in the second quarter of this year fell to the lowest level ever, while credit card spending overseas reached a record high. The average propensity to consume -- the spending money left over after standing costs -- fell to 70.9 percent, which was a record low.
But Korean tourists abroad spent freely, with credit card spending overseas up 5.2 percent compared to the first quarter to hit a record high. The amount of money each Korean tourist spent overseas on one credit card rose 2.1 percent.
The main reason why households have cut back on spending is because incomes are stagnant. Actual household income growth considering inflation was almost flat compared to the same period of 2015. Households cut down on spending on food and non-alcoholic beverages (down 4.2 percent), clothes and shoes (down 2.5 percent) and household products and services (down 6.4 percent).
If an anti-graft law that caps gifts to authority figures goes into effect next month, there are concerns that private consumption will decline even further.
Sputtering private consumption is among the biggest problems facing Korea. When exports are wallowing in a structural slump, stimulating private consumption is the only way to revive the economy, but consumers refuse to open their wallets despite a slew of stimulus schemes.
Other governments are drastically easing regulations and nurturing their tourism and service industries to stimulate private consumption and attract tourists, embracing brash entertainments that appeal to mass consumers. Japan now has a Universal Studios in Osaka, and China a Disneyland in Shanghai. Singapore decided to allow its citizens into casinos, although under strict guidelines.
There are plans to open a Universal Studios in Gyeonggi Province, but red tape and soaring land prices have complicated the project. Efforts to build cable cars in major mountain resorts to draw more tourists have been stymied by environmental groups.
But the only way to stimulate private spending is to develop the service sector, which includes tourism, medical, retail, communication and financial industries and create new demand. The government's endless stopgap measures, like temporary tax breaks and a measly W10 trillion supplementary budget, are not enough (US$1=W1,118). Drastic easing of red tape is needed to foster an environment where new products and services can be created, which in turn will boost private spending and incomes.
- Copyright © Chosunilbo & Chosun.com