The Bank of Korea: "High-Income Groups Lead Consumption Recovery... Private Consumption Improvement Trend"

This Year's Economic Growth Forecast Revised Upward from 3.0% to 4.0%

Sogong-dong Lotte Duty Free Chanel Store

[Asia Economy Reporter Kim Eunbyeol] The Bank of Korea revealed that private consumption is expected to improve this year, supported by the easing of COVID-19 social distancing measures and government support policies, with high-income groups particularly leading the recovery in consumption.

In the "May 2021 Economic Outlook" released on the 27th, the Bank of Korea stated, "Private consumption is expected to continue its improving trend as consumer sentiment recovers and the adverse income conditions ease."

Looking at the Consumer Sentiment Index (CSI) published monthly by income bracket, the CSI for clothing expenditure outlook among high-income groups with a monthly income of over 4 million won recorded 100.5 (2019=100) this month. Notably, the clothing expenditure outlook CSI for high-income groups has exceeded the baseline of 100 for three consecutive months since March, indicating that more people are optimistic. In other words, since this spring, there have been more high-income individuals who stated they would increase spending on clothing and similar items than those who did not.

On the other hand, the clothing expenditure outlook CSI for middle- and low-income groups remains below 100 at around 95.2 this month.

The Bank of Korea explained, "By sector, face-to-face service consumption, which was significantly contracted last year, is expected to lead the improvement. While durable goods consumption, which surged last year, is gradually slowing down, semi-durable goods such as face-to-face services and clothing are gradually expanding due to increased outdoor activities."

Household income is also expected to improve as employment conditions gradually get better, easing the current slump.

The analysis suggests that the increase in the number of employed persons and the gradual improvement in wage expectations will have a positive impact on consumption.

In front of the Louis Vuitton store at Lotte Department Store AvenueL

The purchasing power accumulated by households since COVID-19 and government support policies are expected to contribute to the recovery of consumption going forward. According to the Household Trends Survey, the household savings rate was 24.2% in the first quarter of 2019, 31.7% in January last year, and 31.1% in January this year. This indicates that a significant amount of money was saved due to reduced consumption during COVID-19, and with future government support policies, this could translate into increased consumption.

The Bank of Korea explained, "In the first supplementary budget (March 25), 8.4 trillion won was allocated for damage support to small business owners and others, and 2.5 trillion won for employment-related support, indicating that income support for vulnerable groups will continue this year."

Meanwhile, the Bank of Korea projected that South Korea's Gross Domestic Product (GDP) growth rate will reach 4.0% this year. Private consumption is expected to increase by 2.5% this year and by 3.5% next year.

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