Bank of Korea: "Private Consumption Recovery Likely to Slow Due to Prolonged COVID-19"

Bank of Korea 'Monetary and Credit Policy Report'

[Asia Economy Reporter Kim Eun-byeol] The Bank of Korea announced on the 10th that the recovery speed of private consumption is expected to slow down as the COVID-19 pandemic lasts longer than anticipated.

In the 'Monetary and Credit Policy Report' released that day, the Bank of Korea stated, "Due to the recent resurgence of COVID-19 domestically, the recovery of private consumption is likely to proceed more slowly than expected," adding, "If concerns about the prolonged COVID-19 persist, the contraction of face-to-face service consumption will continue, delaying improvements in employment and income conditions, and consumer sentiment may also find it difficult to recover quickly."

Although private consumption somewhat recovered in the second quarter, the recovery patterns showed differences between goods and service consumption.

Goods consumption rebounded sharply in the second quarter due to government support measures. Looking at goods by type (based on retail sales), durable goods saw a significant increase in passenger cars due to reductions in individual consumption tax and new car launches, while computers and furniture also increased considerably due to the expansion of online education and telecommuting. On the other hand, service consumption recovered more slowly compared to goods consumption. By sector (based on service industry production), consumption of accommodation and food services, arts, sports and leisure, and transportation and storage services rebounded after a sharp decline following COVID-19, but still remained significantly below the same period last year.

Lee Sang-hyung, Director of the Monetary Policy Department at the Bank of Korea, said, "If the spread of COVID-19 prolongs, continued sluggishness in face-to-face service consumption, delays in improvements in employment and income conditions, and uncertainties related to the expansion of substitute consumption may act as factors restricting the recovery of private consumption in the future," adding, "As concerns about the resurgence of COVID-19 continue, the tendency to avoid face-to-face services is expected to persist for the time being."

Furthermore, this contraction in face-to-face activities is seen as a factor that could restrict improvements in employment and income conditions. Accommodation and food services, education, arts, and sports have higher employment inducement effects compared to other industries, so employment shocks may appear relatively large. It is also anticipated that if automation and unmanned operations accelerate to minimize face-to-face contact and reduce labor costs, existing jobs could further decrease.

The Bank of Korea expressed concerns that employment and income shocks caused by COVID-19 may concentrate on vulnerable groups such as low-wage service workers, temporary daily workers, and small-scale self-employed individuals, and if improvements are delayed, it could prolong the overall consumption slump in the economy. Director Lee stated, "As a result of COVID-19, corporate labor demand for low-skilled workers may decrease, which could act as a factor restricting improvements in income conditions for vulnerable groups."

Additionally, he said, "The reduction in expenditures related to face-to-face services and overseas travel being substituted by other goods and services could also affect the future recovery of private consumption," adding, "Although demand for non-face-to-face services such as online games is increasing and online purchases are rapidly expanding, in the short term, delays in improving consumer sentiment are expected to limit the overall recovery of consumption."

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