[Exclusive] Consumer Slump Realized Due to New Coronavirus... Card Spending Down in First Week of February

Card Spending in the First Weekend of This Month Drops 11.5% Compared to the Weekend Before Domestic COVID-19 Outbreak

Government Considering Reducing Individual Consumption Tax to Prevent Domestic Demand Slump

[Asia Economy Reporters Kim Min-young, Jang Se-hee] As consumer sentiment has sharply declined due to the novel coronavirus (COVID-19) outbreak, credit and debit card spending has decreased by about 11%. The actual figures reveal that consumption has taken a direct hit from the spread of the new coronavirus. The government is reviewing plans to reduce the individual consumption tax on certain items to stimulate consumption.

According to the 'Credit and Debit Card Merchant Approval Performance (Weekend Basis)' submitted by the Credit Finance Association to the National Assembly on the 11th, card spending during the first weekend of February (1st-2nd), right after the Lunar New Year holiday, was 3.3523 trillion KRW, down 11.5% from 3.7667 trillion KRW during the weekend before the holiday (January 18-19). This period coincided with a rise in domestic confirmed COVID-19 cases following the Lunar New Year holiday. It is interpreted that consumption decreased as people refrained from going out due to fears of infection.

Card spending during the first weekend of February was noticeably lower even compared to the period from December last year to mid-January this year, when there were no confirmed COVID-19 cases domestically. December card spending was maintained at mid-to-high 3 trillion KRW levels: 3.6292 trillion KRW on the 7th-8th, 3.8501 trillion KRW on the 14th-15th, 3.6339 trillion KRW on the 21st-22nd, and 3.5472 trillion KRW on the 28th-29th. Last month's card spending was also similar to the previous month, with 3.4798 trillion KRW on the 4th-5th and 3.5592 trillion KRW on the 11th-12th. However, card spending on January 25-26, right after the first confirmed domestic case, dropped to 2.0867 trillion KRW, falling into the 2 trillion KRW range due to overlapping Lunar New Year holidays.

Card spending on the weekend of January 25-26, which included the Lunar New Year holiday, was 2.0867 trillion KRW, a sharp 44.6% decrease compared to 3.7667 trillion KRW on the weekend before the holiday (January 18-19). Especially on Saturday the 25th, the first Saturday after the first confirmed COVID-19 case in Korea, card spending was 838.8 billion KRW, nearly half of the 2.1028 trillion KRW recorded a week earlier. Even considering that some stores, such as department stores, were closed on Lunar New Year's Day, the halving of consumption within a week is unprecedented.

Professor Lee Jeong-hee of Chung-Ang University’s Department of Economics explained, "Before the Lunar New Year, consumption tends to increase due to purchases of holiday gift sets, and after the holiday, consumption rises with money received as allowances or bonuses during the holiday. However, this year’s holiday saw the disappearance of the usual seasonal consumption boost due to the impact of the novel coronavirus." She added, "It seems that, learning from the Middle East Respiratory Syndrome (MERS) experience, people are reluctant to go out, leading to a contraction in consumption."

If the consumption slowdown continues, there are concerns about a decline in GDP due to a domestic demand recession. Professor Oh Jeong-geun of Konkuk University’s Department of Economics said, "Consumption accounts for about 50% of Korea’s GDP. If consumption decreases by 5%, GDP will immediately drop by about 0.25%." He also pointed out, "During the domestic spread of MERS in 2015, the number of self-employed people decreased by 98,000."

The government is reportedly considering reducing the individual consumption tax to minimize the impact on the domestic economy. A Ministry of Economy and Finance official said, "After announcing sector-specific measures, we are internally discussing how to handle the domestic demand part. Measures such as a 30% reduction in the individual consumption tax on automobiles and lowering product prices may be pursued." In fact, the government reduced the individual consumption tax by 30% from August 2015 to June 2016, during the peak of the MERS outbreak.

In the past, the government has repeatedly used individual consumption tax cuts whenever signs of a domestic demand slump appeared. Professor Jeong Se-eun of Chungnam National University’s Department of Economics said, "Most people who intended to buy cars already did so when the individual consumption tax was reduced, so it is uncertain how much the tax cut policy itself will stimulate consumption." She added, "Reducing consumption tax results in lower government revenue, which could cause difficulties in government fiscal management."

This content was produced with the assistance of AI translation services.