SEOUL, September 2 – South Korean households have experienced a continuous decline in monthly surplus for eight consecutive quarters, marking the longest streak on record, according to data released by the韩国统计厅 (Statistics Korea) on September 2.
The national statistics agency reported that the average monthly household surplus decreased by 1.7% year-on-year in the second quarter of this year, amounting to 1.009 million won (approximately 5,350 yuan or US$4,200). This figure represents the longest consecutive decline in household surplus, surpassing previous records.
What is Household Surplus?
Household surplus is the amount of money remaining after subtracting total expenses, including interest payments, taxes, and living costs, from the household’s total income. The decline in household surplus can be attributed to several factors, including persistently high inflation rates that have eroded real income and the implementation of high-interest rate policies that have increased interest expenses.
Factors Contributing to the Decline
Over the past two years, real household income has decreased in four quarters, with the largest decline reaching 3.9%. In the remaining four quarters, although household income did increase, the growth rate was less than 1%. Additionally, interest expenses have been on the rise since the third quarter of 2022, with a continuous six-quarter streak of double-digit increases.
The high cost of living, coupled with the central bank’s efforts to curb inflation by raising interest rates, has put a strain on household finances. The Bank of Korea has raised its key interest rate several times to combat inflation, which has had a direct impact on household debt and interest payments.
Impact on Consumption
The decline in household surplus has had a significant impact on consumer spending. The retail sales index, an indicator of consumption trends, has been sliding for nine consecutive quarters since the second quarter of 2022. Last month, it saw a 2.1% year-on-year decrease, indicating a contraction in consumer activity.
Economic Implications
The continuous decline in household surplus has broader economic implications. Lower consumer spending can lead to reduced economic growth, as consumer activity is a significant component of gross domestic product (GDP). Businesses may also experience a decline in revenue, which could lead to cutbacks in production and potential job losses.
Policy Response
The South Korean government and the central bank are closely monitoring the situation and are likely to consider additional measures to support household income and stimulate consumption. These measures could include tax relief, increased social welfare programs, or further adjustments to monetary policy.
Conclusion
The record decline in South Korean household surplus reflects the challenges faced by the country’s economy, particularly in the context of global inflation and rising interest rates. As the government and central bank navigate these challenges, the focus will be on implementing policies that can help stabilize household finances and bolster consumer confidence.
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