Per Capita Gross Domestic Income Declines for Two Consecutive Years

[Asia Economy Reporters Eunbyeol Kim and Sehee Jang] Last year, the real Gross Domestic Income (GDI), which represents the actual purchasing power of the people, decreased again following 2019. This is the first time since the Bank of Korea (BOK) began compiling related statistics that GDI has recorded negative growth for two consecutive years.

According to the '2020 Q4 and Annual Gross Domestic Product (GDP)' report released by the Bank of Korea on the 26th, last year's real GDI was 1,803.6639 trillion KRW, down 0.3% from the previous year. In 2019, it had decreased by 0.3% compared to the year before.

The decline in GDI was larger than during the 2008 financial crisis (0.1%) but much smaller than during the 1998 International Monetary Fund (IMF) foreign exchange crisis (-7.0%). The drop in real GDI, an indicator of the actual purchasing power of businesses and households, means that the income conditions of economic agents have worsened.

The Bank of Korea holds the view that it is more appropriate to analyze GDI by comparing it with other indicators rather than looking at the absolute figures. Specifically, comparing real GDI with real GDP is considered accurate. Since last year's real GDP growth rate fell by 1.0%, the smaller decline in GDI relative to the GDP growth drop can be interpreted positively. In fact, in 2019, despite a 2.0% growth rate, GDI recorded a negative figure.

Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, said, "The prices of our export goods did not rise much, but if the prices of foreign products increase, the ability to purchase foreign products decreases, reducing purchasing power." He added, "Last year, due to the spread of the novel coronavirus disease (COVID-19), real international oil prices fell, so it cost less to buy imports. Although real GDI was negative, its decline was less than that of real growth rate."

Last year, the per capita Gross National Income (GNI) was also expected to be in the mid-$31,000 range. Assuming GNI is calculated based on exchange rates, it is expected to be slightly lower than last year's $32,115.

Director Park estimated, "Since the real growth rate recorded -1.0% and the GDP deflator is expected to be positive on an annual basis, the nominal growth rate is expected to be in the 0% range. Considering that last year's average won-dollar exchange rate rose by 1.2-1.3%, the per capita GNI is expected to be in the mid-$31,000 range." The 2020 won-dollar exchange rate was 1,180.1 KRW, up 1.2% from 2019's 1,165.7 KRW. Per capita GNI is calculated by dividing nominal GNI by the population and is used as an indicator to assess the standard of living. It is usually converted to US dollars using market exchange rates for international comparison.

Last year, South Korea's per capita GNI is expected to surpass Italy's for the first time and reach the level of the G7 (Group of Seven major countries). According to the World Bank (WB) calculation using the average exchange rate over the previous three years, Italy's per capita GNI in 2019 was $34,530, slightly ahead of South Korea's $33,790 that year.

Bloomberg also reported South Korea's expected per capita GNI, explaining, "Although South Korea implemented lockdown policies due to COVID-19, they were less severe than the full national lockdowns in European countries." However, Bloomberg mentioned that South Korea's daily COVID-19 cases exceeded 1,000 last month and analyzed that "the pandemic that swept South Korea in Q4 last year likely prevented a 'V'-shaped economic recovery." Due to the large-scale outbreak and strengthened social distancing rules, economic growth slowed from Q3 last year.

Furthermore, Bloomberg forecasted that even if the per capita GNI surpasses Italy's, a 'K'-shaped recovery characterized by widening inequality could occur. A K-shaped recovery means that while high-skilled, high-income workers see their earnings increase, the conditions for low-skilled, low-income workers worsen.

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