May Service Consumption Nearly Recovers to Pre-COVID Late 2019 Levels

The Bank of Korea Announces Monetary and Credit Policy Report

[Asia Economy Reporter Seo So-jeong] Following the full lifting of quarantine measures, private consumption has shown a rapid recovery, with service consumption in May nearly returning to the level seen at the end of 2019, before the COVID-19 pandemic.

The Bank of Korea stated in its Monetary and Credit Policy Report released on the 9th, "The recent momentum in consumption recovery is expected to significantly exceed the level of the fourth quarter of last year, which was a relaxation period after the fourth wave of COVID-19."

Using credit card data to estimate monthly GDP private consumption, the Bank of Korea found that both goods and service consumption have quickly rebounded from the sluggishness experienced in the first quarter.

In particular, service consumption in May was analyzed to have almost recovered to the level of late 2019, two and a half years after the onset of COVID-19.

As lifestyles, which had shifted mainly to non-face-to-face interactions, gradually normalize, the consumption vitality of economic agents is broadly expanding. For those in their teens and twenties, the transition to in-person classes and full school attendance have led to the fastest recovery of daily life, while for those in their thirties to fifties, commuting to work has greatly increased, with mobility nearly reaching pre-COVID-19 levels.

Additionally, with the full lifting of quarantine measures, service consumption centered on face-to-face services such as lodging and dining is rapidly rebounding. Demand for arts, sports, and leisure, which had been slow to improve, has significantly recovered, and attendance at performances and sports events has reached the highest levels since the pandemic began.

As consumption constraints ease, household spending structures and consumption behaviors are also shifting back to pre-COVID-19 patterns. In terms of expenditure structure by item, service consumption, which had been sluggish, is showing a rapid recovery, and consumption of semi-durable goods such as clothing is also rebounding strongly, increasing their share in total consumption.

The Bank of Korea expects that, considering changes in expenditure structure during 2020?2021, the trend of increasing shares of services and semi-durable goods (such as clothing) and decreasing shares of durable and non-durable goods (such as food and beverages) will continue for the time being.

With the easing of domestic and international entry and exit quarantine measures, the recovery of overseas travel demand is also expected to accelerate. Interest in overseas travel has greatly increased, as seen in the sharp rise in online travel product orders and overseas travel-related search volumes, and the number of departures from major tourist destinations is also significantly increasing. According to Incheon International Airport Corporation, international flight demand in South Korea is expected to recover to 40% of 2019 levels during this summer vacation season and up to 80% by the end of this year.

The Bank of Korea said, "Face-to-face services, especially in areas suppressed during the pandemic such as group gatherings and overseas travel, are recovering the fastest since the pandemic due to the visible pent-up effect," adding, "Going forward, private consumption is expected to continue its recent normalization trend as employment and wages steadily increase and the business conditions of self-employed sectors improve."

However, the Bank of Korea added, "Recent sharp rises in international raw material prices, increases in exchange rates and interest rates leading to greater household burdens, and concerns about the resurgence of infectious diseases during summer and winter seasons may act as factors that partially constrain consumption recovery."

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